When does the big share price spike happen?
by Peter Switzer
The good news is that Wall Street went up. The bad news is nothing significant happened to convince people out of the stock market that it’s time to get in. And the way US politicians look set to behave, the ‘big spike’ in share prices could be further away than I hoped.
Overnight the Dow was up 78.33 points or 0.62 per cent to 12,805.54 while the S&P 500 put on 10.03 points or 0.74 per cent to 1363.67. But the critical questions is why? And does what happen put us closer to the eventual big spike in share prices that happens when a bear market gives way to a bull market?
The good news overnight
Good news helped Wall Street up and here’s what happened:
- Federal Reserve chairman Ben Bernanke gave the market belief that QE3 (third round of quantitative easing) will come if the economy weakens or fails to pick up growth speed;
- Better than expected earnings also buoyed the market with Goldman Sachs a stellar performer while Coca-Cola, Intel, Mattel and others also impressed;
- So far, close to 50 companies have reported out of the S&P 500 and over 70 per cent have beaten expectations while only 13 per cent or so have disappointed;
- Industrial production rose, which was good but the increase was only 1.4 per cent, which is a lot less than earlier in the year; and
- Homebuilder sentiment hit the best levels since March 2007, CNBC reports.
Europe, China and the US
Right now the good news is OK and the bad news is disappearing slowly but question marks hang over Europe. A troubled and slower growing Europe is impeding global economic growth and profits of companies doing business with the Continent.
We are now waiting for China to re-stimulate its economy and then the Fed to give QE3 a run, which will be a short-term shot in the arm for the US economy and stock prices. This will help deal with the US Congress, which is bound to fight over the so-called ‘fiscal cliff’ before the US election. The election will be a break on stock prices going higher.
I still think the spike in share prices, which I reckon will be huge, comes in 2013 and so we will have to deal with this up and down market experience for some time yet. That’s why the smarties are buying dividend-paying stocks such as CBA and Telstra.
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: Wednesday, July 18, 2012
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