Business News
Wall Street refuses to worry!
by Peter Switzer
Wall Street refuses to worry and is avoiding a big sell-off as it seems hell-bent on beating its historical close of 14,164.53. Maybe it’s there where the market will test itself, but who knows?
I argued a few weeks back that it’s all about the excessive stocks surge needing a pullback, versus the rotation of those once scared investors who were playing bonds and term deposits instead of stocks.
At the moment the force of rotation is winning. It has to change one day, but when it does, I don’t expect it to be a deep retracement because people like me will use it as a buying opportunity.
As Mario Draghi of the European Central Bank (ECB) suggested, the negative contagion of the past five years is giving way to a positive contagion. It’s being helped by a run of good economic and good company news, as well as very helpful central banks.
Lights, camera, RBA
And that’s where our Reserve Bank comes to centre stage.
Yesterday we got the latest reading on NAB’s business confidence, which went from plus 2.4 to plus 2.9, while business conditions, which tells us how business is finding business now, also improved from minus 5.1 to minus 1.8, but it’s still in negative territory.
NAB's chief economist, Alan Oster, noted the improvement, but said confidence remains under the long-term average and more relevantly he argues the RBA needs to cut by three-quarters of a per cent before he expects the economy will be positively placed.
Right now, most economists expect unemployment to go from 5.4 per cent to close to six per cent, and in fact if workers had not gone negative on looking for jobs, the actual rate of unemployment of 5.4 per cent would be more like 5.7 per cent.
The March test
March will be a big test for the RBA, with green shoots showing the economy is improving, but if those green shoots aren’t watered, this recovery could whither on the vine.
That's why someone as smart as Alan Oster thinks we need three more cuts, though I'd be happy with one or two.
I don't expect too much out of the RBA.
For the record this is how Wall Street ended 47.46 points or 0.34 per cent higher to 14,018.7, while the S&P 500 gained 2.42 points or 0.16 per cent to 1519.43.
By the way, the economic data out overnight showed US small business sentiment went up, which is consistent with positive contagion view, and partly explains why Wall Street refuses to worry, at least for the moment!
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.
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Published on: Wednesday, February 13, 2013
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