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When will our stocks catch up?

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by Peter Switzer

The Dow was down 2.5 per cent for October but our S&P/ASX 200 index was up 2.9 per cent and October is usually our most scariest month. So, is it catch up time for the Aussie stock market?

The Dow Jones index all-time high was 13,930.1 on 30 October 2007 but it is now at 13,096.54 — that’s not far off. Meanwhile our high on the ASX 200 was 6828.7 and we are now at 4517 and that’s a long way off!

It’s great that we have decoupled from Wall Street in October but it was only a temporary split driven by a lack of significantly good or bad news.

Sure US company reporting season has not been flash, but experts think that better news will come out in the final quarter of the year.

My argument would be that provided the big pictures of Europe, China and the USA can keep improving, then stocks will keep going higher in 2013. And if our Reserve Bank (RBA) keeps cutting interest rates, this will help our dollar slide to a small degree and that will help stocks. So will the fact that interest rates on term deposits will go off the boil, which will make investors look at shares as an alternative.

Generally history says that a stock market will pass its old high before going into another freefall but history never gives you 100 per cent certainty. That said, I think our market will play catch up next year. I have a more optimistic view on the world economy than say Matt Sherwood of Perpetual, who will be on our website today, and that will be good for our stock market. My views are more in line with Shane Oliver of AMP and Craig James at CommSec, but I do have to concede that the economic guessing game is not an easy one.

Critical to my positive view on the Aussie economy and then our stock market will be the RBA cutting rates at least two more times in the next few months.

And I am hoping that it starts on Cup Day.

Finally for those who want to know the Wall Street scoreboard, the Dow was down 10.75 points to 13,096.46 while the S&P 500 index was up 0.22 of a point to 1,412.16.

While there is an unwillingness to take these markets higher, at the same time there is an unwillingness to dump stocks. The big test comes next week after the US election and then the view on what the Congress will do with the fiscal cliff. That could test out the recent positivity for stocks.

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: Thursday, November 01, 2012

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