Business News

Testing the US and us!

| More

by Peter Switzer

Three big issues will determine whether this May to October period will be good or bad news for investors. To date it looks like this is another “sell in May and go away” year but overall, election years are generally good for stocks, though the third year of a presidency tends to be better than the fourth and final.

What amazes me is that Wall Street is quite resilient to bad news this year compared to last year and I think the better US economy and the actions of the European Central Bank (ECB) have explained a lot of that. However, the concerns over Spain this year are more significant than the worries over Greece, on an economy-importance basis.

But that said, the European Union looks to be in a better place to deal with these challenges, while on the other hand the anti-austerity movement and the election changes in France and Greece were not market-unsettling issues last year.

On Wall Street

Over the weekend, US stocks ended down but when you consider the above and add the US$2 billion loss from the idiots at JPMorgan, this result shows there are more investors willing to gamble on stocks this year.

The Dow only lost 34.44 points or 0.27 per cent to finish at 12,820.60. The S&P 500 lost 4.6 points or 0.34 per cent to close the day at 1353.39.

But it was a negative week with the Dow off 1.67 per cent — the worst week for the year — and that also says a lot about 2012 compared to 2011.

For the year the Dow is up 4.94 per cent, the S&P 500 is 7.62 per cent higher and the Nasdaq has increased 12.62 per cent and so they are all losing altitude but it is still a nice start to the year on a historical basis. US company profit news has been good with 66 per cent of outfits in the S&P 500 out of the 450 that have reported beating expectations.

Meanwhile here in Australia, our S&P/ASX 200 index is up 5.6 per cent, which poses the question — is the catch-up on Wall Street starting to happen?

And as the slide slips slowly in the US stock market happens, the VIX or fear index is rising and is close to 20. This is still an OK reading, but we were getting down to 15 or so before May.

Big concerns

The trading loss linked to a dumb hedging tactic for JPMorgan was a big concern for Wall Street but I liked the market’s weak negative response but this week there could be more tests for this issue and its wider implications for US financial institutions. Could it lead to greater regulation? And could this hurt share prices?

Meanwhile Greece’s stalemate and the prospect of new elections won’t be good for market anxiety which in turn is seldom good for share prices. At the same time Chinese factory output in April came in at 9.3 per cent, which sounds good, but economists expected 12 per cent.

This now puts pressure on US economic readings out this week. I reckon markets are watching three big issues — Europe’s debt and election challenges, China’s hopefully soft economic landing and the progress of the US economic recovery, which looks to be slowing down.

What’s ahead?

This week will be important for US economy watchers and locally we have a number of post-Budget economic readings that will have implications for interest rates, the dollar and local stock prices. We get housing finance, consumer sentiment, car sales and the Reserve Bank minutes on their decision to cut rates by 0.5 per cent this month.

In the US, it’s a huge week and I will be watching the CPI number, retail sales, the Empire state manufacturing survey, the housing market index, housing starts, industrial production, oil inventories, the FOMC minutes, the Philadelphia Fed survey, leading indicators and Friday brings the first day’s trade for possibly the biggest IPO ever — Facebook!

This week will be a big test for the US economy and us 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.

Watch more from Peter on SWITZER TV.

Published on: Monday, May 14, 2012

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.

Abbott deserves a Tony Award for that speech!

When do we dump stocks?

Abbott’s budget reply: is he really trapped?

Budget 2013: what are the real issues?

Labor’s trap for Tony Abbott