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What keeps the rally going?

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by Peter Switzer

Profit-taking continues ahead of the all-important US company reporting season which kicked off this morning with Alcoa coming in with an expected earnings figure but a “beat” on the revenue.

The CEO of Alcoa, Klaus Kleinfeld gave a pretty bullish outlook view to CNBC after the release of the figures, with positive growth projections for the USA and especially China, as well as an OK take on Europe which he said was “muddling through”.

Over the next two to three weeks, the profit reports from key US companies could make this rally, but I don’t think they could break it, unless some surprisingly bad numbers show up. They certainly will add to the drama of the stock market in the wake of the fiscal cliff concerns.

On Wall Street

To the scoreboard and the Dow was down 55.44 points or 0.41 per cent to 13,328.85 while the S&P 500 lost 4.74 points or 0.32 per cent to 1457.15.

Many experts suspect US company earnings will pick up this year and that will underpin many of the forecasts that say stocks will go up around 10% this year. However, confidence emanating out of better European economic and market scenarios over the year could add more impetus to the expected momentum, which could push stocks even higher.

The debt challenges and the antics out of the Congress will act as a brake on stock price increases, but I suspect the goods of a faster growing China and emerging economies will add to optimism giving stock prices more oomph over the year.

Like most years there will be high drama and threats of catastrophe but in the end the better stories will win through, especially with interest rates so low which not only helps stocks but also economic growth. Low interest rates will inspire entrepreneurs and consumers, which in turn will get big US companies investing and hiring.

This big business refusal to invest has been a big part of the disappointing growth story for the USA, but I suspect it changes this year.

Data watch

Overnight, US small business sentiment was negative on the economy over the next six months but this reading would have had the cloud of the fiscal cliff hanging over it.

The better reading was consumer credit, which was up for the fourth month in a row.

The jump was $16.05 billion while the experts tipped a $12.75 billion rise.

Consumers borrowing to buy stuff is the starting point in the virtuous cycle of income and production growth that will help us see a good year for US stocks, which will help our markets go higher as well.

All of this will keep this rally alive and kicking over 2013 despite some pullbacks which once again, like 2012, will be buying opportunities.

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, January 09, 2013

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