You were warned
by Peter Switzer
The Dow is down around five per cent since Barack Obama won the US presidency, and so does Wall Street hate him, or the fiscal cliff? The answer is “a bit of both” but in reality market players can’t stand uncertainty and right now in the early stages of post-election negotiations, there’s a heap of it.
It’s not just the threat of a recession if the cliff isn’t beaten — I think it will be beaten — but there are remaining questions about what tax changes will be introduced.
Spooking many players in US markets is Obama’s call on Congress to extend tax cuts for all except the “wealthiest Americans”.
This will worry the people who determine the market on a daily basis in the USA, and if you throw in Middle East concerns with Israel taking out a big wig in Hamas, and EU worries about Greece, you can see why stocks are slipping.
But you have been warned. I advised expect this volatility until the fiscal cliff is sorted and my experts — Lance Lai from Accountancy Invest and Gary Stone from Share Wealth Systems — both suggested that a sell-off was coming.
That’s why I kept telling you a buying opportunity was coming, but the next question is: “When do I move?”
The answer is, “I dunno” but I will be giving this downside a bit more time before I chase the good companies I want more of in my portfolio.
For the record, the Dow was down 185.23 points or 1.45 per cent to 12,570.95 while the S&P 500 gave up 19.04 points or 1.39 per cent to finish at 1355.49.
Not helping stock players was news that factory output in Europe dropped by the biggest amount in about four years in September.
Also, there are silly games being played over Greece after the parliament had tough budget measures passed.
Meanwhile in the USA, retail sales fell in October but pre-election developments like this are to be expected. Believe me, the US economy is on the improve and if the US politicians can come up with a neat fiscal cliff solution, we will see stocks spike in December and the rally will roll into January and February. After that, we will have to work out whether 2013 will be a “sell in May and go away” year.
One more rate cut?
On the local front, it was good to see the big bounce in consumer confidence up 5.2 per cent to 104.3. This was a nice surprise given the Westpac indicator had been in negative territory for 16 months!
My only fear is that this good number could stop the Reserve Bank from giving us another cut in December. I want to see another then, and that might be the end of it if the overseas economies and politicians who are determining our stock prices get their act together.
Until then, there will be a buying opportunity for the long-term player who wants to hold good quality companies that pay dividends.
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: Thursday, November 15, 2012
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