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Wall Street surges

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by Peter Switzer

An earthquake rocked the East Coast of the US overnight but it didn’t have the rattling effect on the 322.11-point gain on the Dow Jones index. So, does this mean that we can relax and think that the recent market tremors are over?

I don’t think so but this market spike is a good omen for long-term investors who are having a faith challenge.

For the record, the Dow was up 2.97 per cent to 11,176.79 while the S&P 500 was up 38.53 points, or 3.43 per cent, to 1162.35.

Without a doubt, shares went higher on two things — Europe didn’t react negatively to any news around the Paris meeting of German and French finance ministers. But the real market maker was the hope that Ben Bernanke might promise to do something about stimulus at his Jackson Hole meeting later this week.

Regular readers will recall that these are what I suggested would be the big drivers for this week.

Buying the dips

What was interesting about this rise was that the 5.8-magnitude earthquake only had a small impact on this rally — so some buyers must have been buying the dip with their ears pinned back. This might be too early for this wise play but it won’t be too long before that time arrives. I reckon pros will be trying this strategy until the bottom has been reached — this is called dollar-cost averaging.

What’s really interesting is that Heinz, like many companies, beat market expectations with a great report of profit driven by its overseas business. This is the kind of positive news that will eventually help drive the US economy higher later this year. Company balance sheets are much stronger than when the GFC hit and that’s why I’m not expecting a big sell-off ahead but I don’t think the bears have gone into hibernation yet.

Bear’s picnic

What’s interesting is that bad news on the economic front did not take buyers' attention off getting into shares. New house sales fell 0.7 per cent in July, which was more than expected.

Meanwhile, the Richmond Federal Reserve index of factory activity fell to -10 from -1 in July due to slower growth in new orders and shipments.
I’d love to say the worst is behind us but we need some really good news out of Europe and the US first. It will happen but we just might have to be patient while those pesky bears keep picnicking!

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, August 24, 2011

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