Business News

The key word is 'however'

| More

With the stock market giving back some of its gains in recent weeks, there’s one really important word that has to be kept in mind whenever you feel negativity taking hold and that word is — 'however'.

The Dow Jones managed to stay positive overnight but the S&P 500 and the Nasdaq couldn’t resist gravity, however the S&P 500 held above the important 1060 resistance level.

Some of the selling of shares was not helped by a surprise fall in consumer confidence, however the Yanks got a strong report on house prices. This is the fourth in a row.

And while the stock market looks a tad negative, there was a very successful two-year US Government bond issue, which was strongly supported.

Sure, some could say this support for bonds is at the expense of the stock market as the cash that could go into shares is taking a two-year ‘holiday’ in the safety of bonds. However, this bond money will be used to kick along the businesses that make up the American economy.

Fatigue sets in

I could go on forever with 'howevers' but it’s unnecessary. The simple fact is that stock-buying fatigue has set in but it comes as price/earnings ratios are near or above long-term averages. This has happened because prices have scooted up on the basis that investors think things are getting better.

Now earnings have to keep on improving, which will then drive the P/Es down and encourage more buying of shares.

This is why I say we need to see the US and global economies keep on improving — economics is the main game as it predicts what should happen to companies’ earnings in the future.

Keep these in mind

For those losing the faith with a couple of down days on the stock market, here are a few positive developments worth thinking about.

Yesterday, the NAB quarterly survey of business confidence jumped to a seven-year high. A year ago, it was at a 20-year low.

Recently the CBA bumped its global economic forecast to 3.7 per cent, which is more bullish than the IMF’s 3.1 per cent.

Meanwhile JPMorgan says global final sales grew by four per cent in September, which is the fastest in a decade.

Of course China came in with an 8.9 per cent growth figure and officials say it’s on track for 11 per cent growth for this quarter.

Also Singapore and South Korea have rebounded strongly for two quarters, while car sales in China are now on par with US sales. The AFR’s David Bassanese said 10 years ago China’s car sales were one-tenth of the Yanks' sales.

Strong consumer demand

But the figure that made me remain positive was the fact that consumer demand in emerging economies such as China, India, Brazil, etc., now accounts for 30 per cent of global production and these guys have only just learnt to shop Western style.

These guys have been given a glimpse of the materialism of capitalism and there’s no turning back. In coming years, this will put the global economy on steroids!

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: Wednesday, October 28, 2009