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Stuck here until ‘you know what’ happens, or not

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by Peter Switzer

The question for investors now is, are we stuck around these levels on Wall Street and the S&P/ASX 200 index until some very good or very bad news happens? And the answer is, definitely yes.

The big focus has become the US election and then the fiscal cliff, and the experts are split on the matter, though most of the ones I respect argue the Yanks will avoid slipping into economic oblivion, or to be less dramatic, recession.

I like the way the S&P 500 index has closed at 1412.97, up 4.42 points or 0.15 per cent as it is showing reluctance to head below the 1400-level.

Economy in focus

Overnight the Yanks got some more good economic news, which helps my long-held view that the US economy is better than expected, but those suckers Fitch, the debt ratings agency, could be passing a new judgment on the USA and that spooked the market a little.

Fitch denied the rumour, saying its next debt call would be in late 2013, and so I’m discounting that negative curve ball. My focus is on the economy as this will determine fourth quarter earnings, which need to be better than the third quarter, which has been disappointing Wall Street.
On that subject, pending home sales were up 0.3 per cent in September, but 2.3 per cent was the expectation. Once again, September was weak for most economic indicators, explaining why the Fed went for QE3, which has been nicknamed ‘QE Forever!’

Good growth

There was good GDP growth news out of the UK overnight and Europeans markets liked that. Blame the Olympics, but I suspect it was more than that. Growth was one per cent in the quarter, which was the best reading since 2007 and the GFC!

Stocks will soar when the big economies of the world shake off recession and low growth. When good news starts to outpoint bad news, the confidence snowball will build and the UK’s result shouldn’t be too easily fobbed off.

The next interesting number will be the US economic growth number out tonight, but it should be weak as the September quarter was a shocker. If we get a surprise better than expected result, then it will help the case for optimists like yours truly.

I’m betting against ‘you know what’ happening.

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: Friday, October 26, 2012

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