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Not worried by Wall Street falls

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by Peter Switzer

Another negative day on Wall Street and it would surprise me if our stock market can resist the gravitational pull. But how worried should we be right now?

My answer is simple — not very.

I have to confess that I don’t like dealing with a spooked stock market and that’s what we have right now. Euro-debt anxiety plus some question marks over the strength of the US economic recovery have raised doubts about the current levels of share prices.

But of course this is speculation and we won’t really get a clearer handle on what is going on until mid-July.

Next month we will get the reports on the European bank stress tests and US company reporting season will start. The early bellwether companies could have a big say on whether we go up or down but before that Europe could have more impact.

Last year, it was the US bank stress tests that told nervous Nellies they had been too negative about shares and these results gave power to the stock market rebound that started in March 2009.

Buy the dips

Well-regarded analysts who believe the good news is still outpointing the bad think that this is a time to buy the dips and if you have a two- to three-year view, I think this is a near faultless strategy. This is especially so if you’re buying great company names with a history of good dividends.

These analysts think the sell off simply follows a recent run up of good days on Wall Street and they have a longer view that we’re in a bull market rally that has periods of negativity. They will tell us “to expect volatility” and that is what we are getting.

News overnight

Today, the US existing housing numbers didn’t paint a positive picture and that did not help the market indices. The Dow dropped 1.4 per cent and the S&P 500 lost 1.6 per cent.

Another negative was the Baltic Dry Index, which is an international shipping index. It hit a 2010-low overnight. It would be better for global trade and economic growth if this indicator was heading up. This measure has been heading down for about four weeks.

Technicals are also playing a big role with the 200-day moving average on the S&P 500 being crossed and that will always create the ‘pile in’ effect making the market decline more exaggerated.

Keep an eye on US company earnings

One interesting argument I have heard is that the correction of a few weeks ago could be the adjustment that the stock market has made in anticipation of poorer than once expected earnings from US companies for the second quarter.

So, if these earnings are better than expected, then the reporting season could be the positive shot in the arm the market is hanging out for. Let’s hope so.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, June 23, 2010