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Sucker rally or real deal?
by Peter Switzer
Wall Street put on a one per cent rally and it raises questions over the expectation that we will see a pullback in stocks ahead of a nice rally at the end of the year. Or does it?
So, what I’m saying is — is this a sucker’s rally or the real deal?
Let’s get the scoreboard stuff out of the way before I give you the blow-by-blow report.
The Dow was up 136.16 points or 1.04 per cent to 13,232.62, while the S&P 500 shot up 15.43 points or 1.09 per cent to 1427.59.
This nice rise was in conflict with yesterday’s slide on our own S&P/ASX 200 index, which was off 1.8 per cent or 54.4 points to 4457.6.
No reason for fall
After working all day away from the markets, I asked my colleagues at Sky News Business last night why the market was down and the consensus was “there was no clear reason”.
It was also even more screwy because the Shanghai Composite was up 1.72 per cent following good PMI numbers for manufacturing.
Meanwhile Europe was behaving itself. How do I know? Well, the UK’s FTSE was up 1.37 per cent, the German DAX put on 1.03 per cent and the CAC 40 added 1.35 per cent. Over in the EU, some good earnings and better economic data in the USA as well as China helped them go positive.
Given all of this, you’d expect a better day for stocks today on the local front.
Good economic readings
So, why were the Yanks so happy with the election and the fiscal cliff hanging over the economy like the black clouds of Hurricane Sandy?
The best answer is that economic readings are painting a less gloomy picture by the day and it is positively unusual to see the market ride higher like this ahead of the jobs number out tomorrow. Some 125,000 jobs are expected but if they are bigger, then stocks will shoot up again.
Overnight the Institute for Supply Management’s manufacturing index went into positive territory with a number of 51.7. Meanwhile consumer confidence hit a four-year high. On top of that, the private sector jobs survey of ADP came up with 158,000 jobs for October, which beat expectations.
The US recovery
The Doomsday merchants have missed the US economic recovery and is building the platform for a stocks takeoff, but first they have to beat the lure of the fiscal cliff, which will happen after next Tuesday’s election battle between Obama and Romney.
The fiscal cliff battle could easily spook the stock market, but once it’s sorted, this real deal improving economic data will drive stocks up again. That’s my bet and I’m sticking to it.
I think this rally will be challenged, but not terribly, unless the fool politicians in the USA have a brain explosion. Given my experience with pollies, it’s possible but I will bet against that too.
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, November 02, 2012
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