What happened to 13,000?
by Peter Switzer
Money was flowing in Europe but the tap was being turned off in the US. Both represent good news, so why did Wall Street reject the Dow 13,000 level? Well, when it comes to racehorses and unpredictable results, the industry hardheads simply say, “That’s racing”. So I can only lament, “That’s the markets”.
For those who like to see the scoreboard — the Dow ended down 53.05 points to 12,952.07 while the S&P 500 lost six points to 1365.68 and that’s a 0.47 per cent drop.
Reasons for the fall
So, how come? Let me list the reasons:
- Stocks are up for February with the Dow rising 2.5 per cent, the S&P 500 up 4.1 per cent and the Nasdaq up 5.4 per cent.
- A sell-off breather is overdue, especially when the S&P 500 is up around 8.6 per cent since January.
- The Fed boss, Ben Bernanke talked about a better labour market and he left an impression that there could be less QE3 or monetary stimulation!
- GDP was up to a three per cent-pace rising, which was better than expected and it means less QE3 is needed and the Yanks are closer to the day when interest rates start to rise.
- The Fed’s Beige Book painted a US economy showing good growth.
- The ECB put another 530 billion euro into the EU banking system via low-cost loans to banks.
All the news is good and if only the EU loan story was the big one of the trading day, then Wall Street might have ended up but now US investors need to look at an economy where the Fed could start pulling back and where inflation and eventually rising interest rates could be coming.
Ironically, it’s a good sign that a financial crisis economy is now being replaced with a more normal economy that still has to deal with long-term debt issues.
Given the five-month straight gains for the Dow, I reckon a bit of a pullback is both overdue and a good thing.
What might be seen as a tad negative today will be at the core of why markets keep improving over 2012 — that’s the markets!
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.
Published on: Thursday, March 01, 2012
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.