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US jobs and EU elections

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by Peter Switzer

I would love to be fully bullish for you and be unwisely advising you to ignore some negative signs out there and the less than merry market month of May — a journalist can make big calls — but as an economist and financial planner I have to show caution.

If you’re a long-term investor, like me, who knows the market will eventually repay for sticking solid to great dividend-paying stocks and wonderful mining companies, then you can live with the likely ups and downs of the market. However, if you can’t take the bad stock price times, which could be around the corner, then you have to play safe until someone like me can put his hand on his heart and say the “worst is behind us”.

This weekend

I don’t think we’re quite there yet with the US jobs number out tomorrow and elections in France and Greece this weekend.

Also the debt question marks over Spain could unsettle the market, though I think the European Central Bank is making investing life better for all of us compared to last year. I also think that when we come to know that the worst is behind us, it’s usually some time after it actually was!

That said I want to see Europe play out over the next few months and see what happens to the US economy, which has been slowing down. That’s why the job numbers have been good.

On the other hand, US company reporting was better than expected but the S&P 500 is up only around 0.5 per cent since the good company news came in.

On Wall Street

Overnight the Yanks got a weaker than expected Institute for Supply Management non-manufacturing reading, just like we did here with the Australian Industry Group/Commonwealth Bank Performance of Services Index slumping over seven per cent to 39.6 — the worst reading in three years and that was GFC times!

The Dow fell 61.98 points of 0.47 per cent to 13,206.59 while the S&P 500 index lost 10.74 points or 0.77 per cent to 1391.57 and this is bound to hit local stocks today.

Against the bad news, the US got good jobless claims and this is why I’m not jumping on board with those who easily put the kibosh on the US growth story. I also know that the Federal Reserve is ready to throw more money at the problem if the economy weakens.

The crucial number for the US jobs report is 170,000 and anything above will be good and anything way below could spook investors. Against this, retail sales were a little disappointing at some major outlets.

More cuts to come

On the local front, the CBA’s 40 basis points cut was a positive for our stock markets and I expect more Reserve Bank cuts, which should help our stock market. There could be some testing times over the next few months but as I have been arguing, I will be buying my favourite stocks on the dips.

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: Friday, May 04, 2012

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