By then, our local corporate earnings will have been put on show, and more economic reports from the USA on the progress of the US recovery would have been revealed.
These revelations will have a big bearing on how the stock market reacts, but the analysts/expert consensus has totally changed direction. It’s all up now with some prepared to bet that there could be some sideways action mixed in with a pullback. However, those who say we could head back to the March lows are in a shrinking minority and even sight-challenged Freddy could see that we seem to building ourselves back to where we were before Lehman Brothers discovered that they weren’t too big to fail!
Better news breakdown
Let’s look at the collection of better news that supports the comeback in cyclical stocks, and the rejection of defensive, as stock markets surged higher and higher.
At home our economic news continues to surprise on the positive side and this could be reflected in upcoming corporate earnings. Company profits projected months ago reflected a consensus view that the economy was heading for recession and that unemployment could peak at 8.5 per cent, but many economists are pulling this figure back.
The economy is looking so much better that we are now looking at interest rates rising, when two months ago most economists said rates had further to fall. Even inflation measures are saying that our economy has not gone into the shocking contraction tipped by many.
While plenty of experts think the markets have shot ahead of themselves, they are still below the post-Lehman collapse. I think we are working back towards where we were before something thought too big to fail, failed. When this happened the S&P 500 was around 1,200, while it’s now 987, and our S&P/ASX 200 was at about 4,900 against 4,244 now.
As you can see, we still have a long way to go to get back to the September 2008 market levels. It’s a go back to the future scenario.
However, as long as the news continues to be better than expected, aside from a correction or pullback of up to, say, 10 per cent, it should be onward and upward to those old levels.
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