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Where to now? Sideways then up

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by Peter Switzer

Volatility on the stock market is still with us but are we staring a buying opportunity in the face and we don’t know it? My gut feeling says yes and it reminds me of the way I felt in April but the reverse!

Regular readers know I’m a long-term bull when it comes to shares, despite my admission that we’re in a sideways range. That said, for the past two financial years if your portfolio pretty well matched the S&P/ASX 200 index you made around five per cent and with dividends and franking credits you did around nine to 10 per cent. That’s not bad in such a troubled market and global economy.

History shows…

Back in April, I kept referring to the history and the value in the cliché of “sell in May and go away”. Well, history worked out as it often, but not always, does.

History also says that September and October are the big sell-off months and that is a worry given the spook factors around at the moment. But also the December and March quarters on Wall Street are pretty good ones.

Throw in the history of the third and fourth years of a presidency being good for stocks and the regularity of a Santa Claus rally on Wall Street and being tentatively pro-shares is not that dumb a view to hold.

The game would go now while stocks are cheap, while the more cautious would wait to see October out of the way but that could mean you miss out on a fair bit of any bounce — “no guts, no glory!” Of course the flipside of this war cry is “too much guts, too little money!”

Positive for Wall Street

One big plus for Wall Street has to be the central bank boss, Ben Bernanke, promising to keep interest rates low until 2013. That has to eventually bring out business, consumers and housing borrowers. And it’s better than spinning out the money supply.

The big question marks hang over Asia as I reckon the US will beat the double dip recession blues.

The Dow and the S&P 500 were virtually flat overnight. The VIX, which measures volatility and fear, is still over 30 and so we’re still a bit jumpy.

I reckon low interest rates for around two years has to be good for stocks as investors compare the two alternatives and so it has to be a boon for stock players.

The outlook

By the way, in the corporate reporting season retailers have done well with Target the latest to beat expectations on the sales side as well. The US consumer is showing signs of making a long-awaited comeback.

Inflation was higher than expected on the business front but mortgage applications went higher and low home loan rates are seen as the logical reason.

I’m seeing green shoots for better growth in the States but I only hope the Europeans and the grey-matter-challenged, US politicians in the budget-deficit reduction committee don’t open their big mouths and fail to water these shoots!

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: Thursday, August 18, 2011

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