Business News

Overdue selloff

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by Peter Switzer

Every morning people like me look for reasons to explain why the stock market is up or down and some days it’s easier than others. This morning, it’s a hard one but the best explanation for the slide on Wall Street was that there were more sellers than buyers!

The Dow ended off 97.33 points, or 0.76 per cent, to 12,780.95 while the S&P 500 was off 7.27 points, or 0.54 per cent, to finish at 1343.23. And certainly one reason for the sell-off is that 1350 is seen as a resistance level for the index and only red-hot sensational news would mean that an important level like this could be crashed through.

Overnight, the news was mixed but I still scored it as a win for the good guys, not the short-sellers and the hedge fund manipulators.

On the negative side, the Federal Reserve minutes showed there were some members arguing for more bond buying which implies they think the US economy needs an expanded money supply. You would only come up with this line if you were worried about the recovery. This preceded Ben Bernanke telling the world that US interest rates were on hold until 2014!

Data overnight

Let’s quickly survey what else came out last night that could have influenced the market:

European Union finance ministers were putting up roadblocks to bailing out the Greeks but it wasn’t thought it would cause a disorderly fault.
Industrial production for January did nothing against expectations of a 0.7 per cent rise but December’s rise was revised up from 0.4 per cent to one per cent.
Manufacturing data for the state of New York was way higher than expectations.
The homebuilder sentiment index hit the best level in more than four years.
China said it would invest in eurozone debt, which is a big plus.

Europe a concern

As you can see, good news was better than bad but as the market has been heading up since October and has rocketed up since the European Central Bank lent half a trillion euros to EU banks, it makes perfect sense that a sell-off is overdue as I have been forewarning.

I don’t expect any August-style collapses of share prices but news flow out of Europe remains the main market mover. Remain calm but expect the odd heart palpitations over the next few months.

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: Thursday, February 16, 2012

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