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What's next for markets?

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by Peter Switzer

In case you missed it, we had a pretty good week last week with the stock market up over two per cent and the Yanks have had a pretty good start to the year with the Dow Jones index up over five per cent. But what’s next?

Yesterday I advanced the argument that we could see the old “sell in May and go away” which coincides with the summer period in the US, which historically is not so good for stocks.

The flipside to this trading cliché is the often-looked-out-for and often-delivered Santa Claus rally.

On the subject of a “sell in May” scenario, the pundits point to the expected end of the QE2 pump priming in July which could induce a market fall. This scenario is plausible but it doesn’t mean it’s a certainty.

The headwinds

Right now there are so many headwinds buffeting investor confidence, and the charts of the technical analysts are not screaming “be a buyer” but they’re also not screaming “be a seller!”

Those headwinds are Japan, Libya, protests in other oil rich countries, Europe and its debt problems, rising commodity prices which threaten inflation and concerns over China.

Slightly positive market

Despite these, Martin Lakos from Macquarie Private Wealth told me on my Sky News Business Channel program that he thought the general market mood is slightly positive.

What? How do we remain positive with all those negatives, and I have left out the housing crisis in the US, which won’t go away and the debt problem with municipal councils in the States, which could be a ticking time bomb.

I guess the only two answers which carry some credible reason as to why shares are attractive is first that interest rates are so low around the world, except here in Australia. And second, the US economic outlook gets better than the doom merchants have been predicting.

First they said that there would be a double dip recession and they were wrong and now they say the growth in the US won’t last without QE3. Well, the accountants of America disagree.

Data watch

CNBC reports that the latest KPMG survey of executives in manufacturing and services found optimism is on the rise and the bad times are in the past.

Some 68 per cent of manufacturing executives said business activity will be higher in the next 12 months. This is 11 percentage points higher than October last year, and 41 per cent said they will hire more staff and that’s 13 percentage points higher than October!

Overnight pending home sales went up 2.1 per cent in February and that surprised on the right side for economists.

Consumer spending was up more than expected in the same month. That’s eight months in a row of bigger spending consumers.

This week is a jobs report week in the States and this will be a big issue for market players. Let’s hope the economic news can keep countering the other threats to this rally.

I expect run ups and pullbacks — that’s natural for markets — but only a big negative event will rock investors who I think on balance are, as Lakos suggests, positive, at least for the moment.

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: Tuesday, March 29, 2011

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