Business News

Retail or Euro-fixed rally

| More

by Peter Switzer

A solid rally on Wall Street was driven by great retail news over the Thanksgiving weekend and some optimism — possibly misplaced — that Europe is closer to a final chapter to its debt drama.

The Dow rose 291.23 points, or 2.59 per cent, to 11,523.01 while the S&P 500 was up 33.88 points, or 2.92 per cent, to 1192.55.

Our market yesterday was excited by news in the La Stampa newspaper in Italy, which reported that the IMF was looking to lend 600 billion euro to the Italians to tide it over for around 18 months. However, the IMF denied this after our market closed.

More Euro-news

So this rally has to be on other news and there were some European stories out overnight that got Wall Street out of its negative attitude.

Reports say France and Germany are exploring some lateral thinking on speeding up fiscal integration for eurozone members. That means putting the budgets of the 17 member countries under more discipline. It has been the lack of this, which has been the root cause of their debt problems.

Meanwhile, President Barack Obama has put pressure on the Europeans to pull their finger out on finding a credible solution and he offered US assistance.

Obama knows if Europe doesn’t deal with the issue effectively it will hurt the US recovery, possibly causing a recession and he has an election to win in 2012. Recessions never lead to re-election outcomes and while the Republican opponents don’t even look drover’s dog class, a recession will get a mangy mutt across the line!

The best news for the US and Wall Street was the record $52.4 billion sales over the Thanksgiving holiday weekend, which was a 16.4 per cent jump on 2010! This is a good sign for the US recovery but a Euro-disaster could rain on this ‘Thanksgiving Parade’.

Adding to the positives, new home sales rose 1.3 per cent in October.

Yesterday’s reaction to the IMF-Italy story shows how this market will fly high when a real solution to Europe appears.

Plan needed

Goldman Sachs chief economist Jan Hatzius has looked at 10 market moves over three per cent since August this year and a mere two were linked to positive economic stats. He says the better economic story provides a foundation but markets need policy decisions to push the market up and stay up.

There’s a belief or hope that eventually the European Central Bank, the IMF and even the G20 will come up with a plan and that’s when stocks will soar.

Michael Knox on SWITZER on Sky Business thinks the ECB will cut interest rates big time and that will spark a market jump and then some ECB-IMF plan could also be used to give the debt repayment strategy more credibility.

Something positive will happen but we’re in the laps of the Europeans!

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.

Watch more from Peter on SWITZER TV.

Published on: Tuesday, November 29, 2011

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Why Aussie stocks lag Wall Street

Kill QE, kill rally? Nope!

Dow to reach 20,000 – can you believe it?

It’s not All Too Hard, it’s More Joyous!

Abbott deserves a Tony Award for that speech!