Business News

Unusually uncertain? No surprises there

| More

by Peter Switzer

Negative comments from the US central bank boss Ben Bernanke slightly spooked Wall Street overnight with the Dow losing a tick over one per cent and the S&P 500 dropping 1.28 per cent. The Dow Jones finished at 10,120.53 while the S&P stopped at 1069.59.

Without the Fed Chairman’s blunt observations, the market might have finished in positive territory after the good news from Apple — and later Morgan Stanley — which beat expectations with their profit reports.

Bernanke’s blooper was a reference to the economic outlook being “unusually uncertain” and it was not well received. It was taken by those who have vested interest in spooking the market to push the ‘sell’ buttons.

However, let’s face it, it was not a dramatic sell-off. He only said what anyone with a brain and who is watching the US economic recovery would have said — it is unusually uncertain.

The comments reinforce the view that interest rates in the US will be low for longer and it makes shares more attractive. The Fed boss is buying time until the companies of America, now with a lot of cash on their balance sheets, start to employ again.

It is a bit like ‘the chicken and the egg’ issue — consumer demand has to rise to force employers to create jobs but consumer demand won’t rise until more Americans are back in work!

Amid this slight negativity, Apple, which trades at US$254.24, has recorded such a great result that analysts have it at a price target of $400!

Two great reports came from Morgan Stanley and Wells Fargo, which both beat analysts’ expectations. US banks were targeted by some experts as unlikely to impress with their reporting season, so these are two good signs on a negative day.

For those wondering why good profit figures are not being cheered as loudly as would be expected, analysts want to see revenue increases that reflect more buying is coming from US consumers and businesses. If the profits come from cost-cutting, it says the recovery is faltering or is simply too slow to create jobs down the track.

By the way, there was some good economic news with mortgage applications spiking to the best level in over a year. This is the second positive piece of news for the US housing sector this week.

For the rest of the week, some really big names will report their corporate earnings but Friday’s European bank stress tests will be the big test of the bears and the bulls. I am hoping the bulls will be charging and the bears will be hibernating by Saturday morning.

If only the European banks and governments could play their games as well as their soccer teams — we might not be in this market mess.

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: Thursday, July 22, 2010