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Sellers are outnumbered

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by Peter Switzer

Wall Street refused to capitulate to negativity, despite some bad jobs data. Meanwhile two of the smartest guys in US financial markets gave stocks a big thumbs up, with one arguing that the US recovery is better than you might think.

The big news that should have sent the market down was a decrease in private payrolls from ADP, which worried the market. However, the less than one point fall in the S&P 500 to 1159.97 was a sterling effort underlining that the inclination to sell is not on many traders’ agendas.

The Dow ending up 22.93 points again proves the above argument. The index finished at 10,967.65 and this was close to the high of the day.

The Nasdaq lost 0.8 per cent but this bigger fall came after two chipmakers were downgraded by analysts.

So, why is the positive beating the negative?

The weaker dollar is helping US stocks but it’s QE or quantitative easing that is building a wave of optimism. And by the way, many countries are doing QE in varying degrees.

Also volatility is falling and this is a good sign for stock buying.

Better recovery

But the best news came from Jim Paulsen at Wells Capital Management, who helps run $342 billion in assets. He told CNBC that the current US recovery is actually better than the past two recessions.

He showed that after the 1991 recession, payroll growth took one year to come back. In 2001, it took 21 months but in this one it was only six months! He thinks the US will grow at a three to four per cent rate next year, which is above consensus. He believes this will feed into better stock prices.

Larry Fink, Chairman and CEO of BlackRock, which has $3 trillion under management is also bullish. He says the US recovery is slow but is building a little bit of momentum but it will be a long train coming. He points to $2 trillion worth of cash on US company balance sheets and that is holding back the stock market but eventually the CEOs of these companies will have to put the money to work to gain an acceptable return on investment.

Fink likes big companies paying good dividends over the next three to five years as a great stock play.

Market outlook

And to add to optimism I like this latest fact I found on how markets respond to a mid-term election in the US, which is happens on 2 November.

In 18 out of the past 19 mid-term elections, the market has rebounded giving double-digit returns over the ensuing six months. The promise of a better future is driving the market up right now but more action lies ahead in coming months.

Finally, retailers will be showing and telling how they have been performing tomorrow and this will be closely watched by the market.

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: Thursday, October 07, 2010