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Wall Street up but anxiety not over yet

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by Peter Switzer

Last night, I filmed SWITZER at Luna Park to coincide with the Vinnies CEO Sleepout and while the issues raised over homelessness captured my attention for most of the night, when I woke up at 5:30am I just had to see what Wall Street did overnight.

Fortunately, the Dow was up 64.25 points, or 0.54 per cent, to 11,961.52 and the S&P 500 sneaked up a weak 0.18 per cent but at least there wasn’t another big leg down. That said, I don’t think we’re out of the woods as the Yanks are down only around seven per cent while we have hit correction territory after losing almost 10 per cent since April!

Regular readers will recall I tipped a correction — a 10 per cent fall was on the cards — and so here it is. The two big drivers for the recent drops have been the impact of Greek debt on European banks and the US economic slowdown.

News overnight

Overnight, the Americans got some good economic news with housing starts better than expected and applications for jobless benefits falling more than expected. Against that, manufacturing activity fell but I put this down to the Japanese and weather effects. Car manufacturing around the world has slowed because of supply problems following the tsunami and nuclear fallout.

On Greece, an interesting development was talk that China might bailout Greece! It was talk at this stage but it buoyed sentiment and it’s fascinating to think about the world’s number one communist country riding to the rescue of capitalism, again.

Build a base

What we now need to see is some efforts from the market to build a base at these low levels but with the end of QE2 looming as June peters out, I reckon the short-sellers and hedge funds will test out the nerves of investors.

The big potential positives that could turn this negative trading around will be a new Greek bailout, better US economic news, which will take a couple of months, I suspect, and better-than-expected US company reporting in coming weeks.

If this can happen, which could be hard in a slowing US economy and a Japanese devastated economy, then that could put the bulls in charge again.

I tip a month or two of ups and downs until a positive reason for share buying takes over. I only hope no new, big negative emerges as that will test the resolve of investors.

History a good guide

One last thing — if you have a policy of collecting good quality, dividend paying companies, we are undoubtedly in good buying territory despite the fact that the market could lose three to four per cent more in coming months.

That old 'sell in May and go away' has extended to June but the Yanks can’t help themselves in the autumn or the fall and history says it’s the time for shares to stop falling.

I think history will be a good guide in the second-half of this year.

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, June 17, 2011

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