Business News

Wall Street down but not out

| More

by Peter Switzer

When I went to bed in Shanghai – and it was pretty late – Wall Street looked like it was going to have an ugly finish. However, the tech-heavy Nasdaq index finished in positive territory.

And locally, it's good to see our Reserve Bank isn’t champing at the bit to raise interest rates.

While on the subject of bed, some analysts even think the alleged crazy sex antics of the IMF chief could have hurt the stock market!

The Dow lost a tick over 68 points, or around 0.55 per cent, to end at 12,479.58 while the S&P 500 was down only 0.04 per cent – less than a point – to 1328.98.

Companies report

On the other hand, the Nasdaq ended up just in positive territory but that was not a bad effort given that Hewlett-Packard predicted a rough third quarter, especially due to the Japanese disaster’s impact on its business.

That said, the company also talked about weaker sales at home.

And while on home, Home Depot beat expectations and as this business is in the home upgrade business it was seen as a positive sign for the US consumer.

Both the above company stories explain why US stocks can be down big time in the trading session and then a rebound happens – simply, investors might have doubts about the US economy but they’re not committed concerns, at least at the moment.

Of course, there’s a dash to defensive stocks and that makes me think that this current downtrend has a way to go but it will need a fearsome X-factor to totally spook investors.

Investor concern

Right now investors are worried about:

Some softer US economic data
European debt concerns for the likes of Greece and Portugal
The end of QE2 in late June
The battles over deficit and debt ceilings in the US Congress
Slower economic readings out of Asia
And, believe it or not, the odd behaviour of the IMF boss, Dominique Strauss-Kahn, who is under arrest for sexual-related matters with a hotel maid!

This latter one looks a long bow but sure, Strauss-Kahn’s potential lack of input into the European debt problems is seen as a negative.

Resistance level

The technical types were happy to see the resistance level for the S&P 500 of 1319 was broken but the market went higher. This shows there’s not a big appetite to punch the market too low.

By the way, the next support level for the 50-day moving average is thought to be 1230 and that’s a long way from today’s close of 1328.98.

The run of good and bad news as well as economic data could settle the issue.

Also on Wall Street

Overnight, US industrial output for April dropped 0.4 per cent, while economists expected a 0.4 per cent rise. That was the first slip in 10 months, however it was small, and when it comes to statistics they can’t rise forever.

On global economic softness, the US light, sweet crude oil price is now down to US$96.91 a barrel and lower commodity prices have taken the Oz dollar down to the 105-US cents region.

Adding to the negativity, Wal-Mart reported same-store sales down but the good news I liked came from J.P.Morgan boss, Jamie Dimon. Reuters reported that he said the US economy was at the "beginning of a self-sustaining recovery". That doesn’t mean the market will instantly react by taking share prices up but it lets me think of a second half share price recovery on Wall Street, a rising US dollar, a lower Australian dollar and the likelihood that Australian shares will have nice kick later in the year.

Rates outlook

One last point: CommSec pointed out that the Reserve Bank isn’t as keen to raise interest rates as banking economists and journalists have inferred.

After looking at the minutes from the May board meeting, it was concluded:

“The key issue for the Reserve Bank is how long will this weakness last.

In late 2010 there were tentative signs of thawing in the conservative attitudes of consumers and businesses, but it seems that once again activity levels have tracked backwards. The Reserve Bank would need to see some improvement in economic conditions before justifying the next rate hike. CommSec expects the Reserve Bank to stay on the interest rate sidelines for at least the next two months – especially given that inflation looks to be well contained.”

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: Wednesday, May 18, 2011

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.

Why Aussie stocks lag Wall Street

Kill QE, kill rally? Nope!

Dow to reach 20,000 – can you believe it?

It’s not All Too Hard, it’s More Joyous!

Abbott deserves a Tony Award for that speech!