Business News

Stock market return

| More

by Peter Switzer

Looking at the economic and corporate tea leaves it foretells a story that looks very likely to come to pass — the stock market promises a minimum return this year of 10 per cent but could easily be 20 per cent!

Of course, something could come from left field that is not on the radar screen, which could prove me wrong — this kind of thing goes with the patch when you go looking for 20 per cent returns.

In case you need reminding, just think 11 September 2001 and the collapse of Lehman Brothers in 2008.

These incidents aside, the kinds of information that drives markets up and down are definitely stacked to the positive.

Stock market predictions

The starting point is where the S&P/ASX 200 index finished last week. After six days of positive returns the index starts the week at 4767.2. Now factor in the best call on where the market is heading comes from Deutsche Bank’s chief equity strategist — Tony Brennan, who incidentally was one of my top economics students from UNSW, when I was an academic.

He thinks the finish point will be 6000. However, the consensus figure on my reckoning is 5500.

So if the lower figure prevails the index goes up 15 per cent and you have to add in dividends, which should average three per cent to be conservative. That gives you 18 per cent for risking your dough in the casino called the stock market.

If Brennan is right then you could pocket 26 per cent plus dividends taking you to the princely return of 29 per cent!

How is this possible?

This could make you shake your head and ask: “How come, if we have been such an economic and financial wreck, we can get these returns?”

Well, Brennan, who often appears on my program — SWITZER on Sky News Business Channel — explained himself in The Weekend Australian this weekend.

“Once a crisis starts, the recovery can be quite strong for 18 months,” he pointed out. “So this experience that we are having is pretty typical of the others — the mid-1970s oil shock, the recovery in the early 1980s, and you could even go back to the Great Depression.

“It’s driven by the economies growing from a very low rate of growth, quite often contractions, to having growth rebound from those depressed levels.”

Add to this the fact that the US recovery is defying the doomsday merchants and it looks likely that Wall Street will not derail the good vibes scenario.

Good news

Some of the best news last week from the States was the bigger than expected rise in the ISM for services. Services are the big job creator for the US.

The jobs report showed only 36,000 jobs were lost when economists though 50,000 would go, but some thought it could as big as 200,000 because of the snow storms that have closed down shops and towns for days on end. This left unemployment at 9.7 per cent, which would have fallen without the blizzards.

Also, jobs for temporary workers have now risen for five months on a trot and labour market economists like this trend.

Another good sign was that commodity stocks went higher on the jobs report, which means the better US outlook helps the global recovery and that means the likes of oil, coal and iron ore also will be in demand. It also explains why the Oz dollar is up to 90.75 US cents.

Assess your risk

So, how do you make 10 to 20 per cent or more this year? Make sure your portfolio of shares are constructed to match or to beat the S&P/ASX 200. Buy an ETF, which is linked to the index or buy an index fund, which mirrors the index.

I know it’s hard to be courageous when there are scary things around like the Greek debt drama but that always happens with stock markets — you will always have reason to be scared.

If you are scared, then halve your investment and put the other half into the three-year fixed term deposits at better than seven per cent, but even here you could lose out if three-year deposits are eight per cent in two years time.

When you want higher returns, you have to cop higher risk as well as more thrills and spills.

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.

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.

Published on: Monday, March 08, 2010