Business News

What? Stocks aren’t so bad now?

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by Peter Switzer

Markets are in limbo and that’s why one day we look like we’re heading down and the next we manage to go up. Europe is the culprit, the usual suspect that is putting a lid on stock prices and so we have to wait until Thursday or Friday, European time, to determine what the next leg for share prices will be.

Overnight Wall Street went higher with the Dow up 32.01 points or 0.26 per cent to 12,534.67, while the S&P 500 was up 6.27 points or 0.48 per cent to 1319.99.

Nothing came out of Europe to add to the spook factor for traders.

Housing data

Traders actually quite liked US house price data, which added to the house sales data released yesterday that was the best since April 2010. The results are starting to paint an improving picture for the overall housing sector. This has been a piece in the economic puzzle that has been missing since 2007 and a comeback of this crucial sector is a usual prerequisite for a sustained economic recovery.

So these are positive signs but OK data out of the USA can’t nullify the negativity out of the EU. By the way, great US economic readings could suggest decoupling but this is not happening and so we wait, with baited breath, for the EU summit at the end of this week.

Positive observations

Last night on my Switzer program I picked up some useful positive observations. Matthew Kidman, the author of Bulls, Bears and a Croupier Who Stopped Gambling and Made Millions, who is a stock market historian of sorts, thinks we hit rock bottom on stocks this year ahead of a big spike next year. If history is a guide, we could see a 40 to 60 per cent jump when the worst of the bad news is behind us.

Then Michael McCarthy from CMC Markets told me that his reading of key indicators says that the market is resisting selling off and is just looking for reasons to buy. He agreed with me that the VIX or fear index in the USA, which is around 20 or so, confirms that share players are a lot more confident about stocks at these levels and valuations than they were at the depths of the GFC when it was up around 80!

The long-term investor

Now I know this might be cold comfort to someone enduring losses today but if you are a long-term investor, these two wise guys and their observations might make you be more prepared to stick with stocks and to buy the dips when great companies look like great value.

On the negative side, US consumer confidence as read by the Conference Board was down for the fourth month in a row and this links up with the negativity that came with Europe playing the debt problem child again.

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, June 27, 2012