Business News

The market challenges ahead

| More

by Peter Switzer

At the risk of sounding repetitive, Europe again cracked the bottled-up enthusiasm of the Yanks to buy stocks, with the expectation that a number of eurozone countries were set to be downgraded by Standard & Poor’s.

Right now there’s a preoccupation with the idea that the US’s markets were decoupling from Europe but the real test will be when some really bad news comes from the Continent.

Of course, if such an outcome doesn’t result, we could see Wall Street head up but the failure of the S&P 500 index to breach 1300 remains an important issue.

That said, the charts guys say a golden cross formation is emerging and that happens when the 50-day moving average crosses and goes higher compared to the 200-day moving average.

Golden cross

It can also be a forerunner to the development of a bull market and so it has a tendency to get traders excited. By the way, the success rate of a golden cross leading to good news for shares is in the very high category.

But the looming cross did not stop the Dow dropping nearly 49 points to 12,422.06, that’s off around 0.4 per cent. Meanwhile the S&P 500 was down 6.41 points, or 0.49 per cent, to 1289.09.

And the market was right with nine countries including France downgraded.

This is how the WSJ reported it: “Standard & Poor's Ratings Services on Friday said it had stripped triple-A ratings from France and Austria and downgraded seven others, including Spain, Italy and Portugal. It retained the triple-A rating on Europe's number one economy, Germany.”

Is it news?

I have to say the reaction, though negative was quite muted and shows that Europe is less impactful in 2012, but these tests of market confidence are not dramatic and possibly they aren’t really news.

“This is not new news—we’ve been talking about these downgrades for months,” said Doreen Mogavero, president and CEO of Mogavero Lee & Company on CNBC. “This is a headline reaction and not fundamental…you’re going to get volatility every time you have a significant headline.”

Greece could be the first real test and if talks over its debt defaults don’t improve, there could be one less country in the eurozone. That will be a real test of market resolve to remain tentatively bullish.

On the good news front, the Thomson Reuters/University of Michigan’s Consumer Sentiment Index hit 74 in January, which is the best reading since May! That was the month when stocks gave into gravity and kept doing so for most of 2011.

What’s ahead?

Next week the Yanks get a bag of important economic readings on the economy, which should confirm that the economy is turning the corner.

On the Aussie front, we get economic readings on lending, car sales, consumer sentiment and a big number for interest rate worriers — unemployment.

Lots of economists think another rate cut comes in March and a bad jobs number would make it a certainty. But this could set up a whole new drama over whether the banks will pass on the cut!

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, January 16, 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.

Ignore stupid recession headlines

So what happens this week?

Suddenly, Wall Street went positive – what just happened?

Be warned – things will get better!

News, news, news: the good, the great and the unimportant