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Bull market believers

Peter Switzer
6 July 2009

The one great thing to take out of last week’s relatively disappointing run of economic data in the USA is that there are a lot more bull market believers now than in early March when the stock market plumbed its lows.

Despite a run of losing weeks, the willingness to sell shares off big time is just not there as it was months ago. The Volatility Index had gone below 25, though after some bad jobs data it has spiked to 27 or so, but this is nothing like the 80 plus reading in the latter quarter of 2008!

Stimulus package strategies

Economically, the Yanks are not seeing jobs make a comeback as quickly as everyone would like, but part of the reason is that the Obama Administration has not spent enough of its US$787 billion stimulus package. The Obama team wanted the money spent on infrastructure rather than tax cuts but this sort of spending is always slow to get out there and into the pockets of consumers.

That’s why the Rudd Government went for the dash for cash, which ordinarily I would be critical of, but with a serious recession beckoning the instant gratification approach looks to have worked here.

The economics team at Citigroup now thinks the Oz economy will actually grow in 2009 by 0.25 per cent but they don’t expect anything flash in 2010 with the growth rate only sneaking up to 1.5 per cent. Still, they are positive numbers in a global sea of negativity. 

Eye on America

That’s great for keeping people in work but what about the stock market, the prices of our shares and the bottom lines on our super funds? I think the American story is going to be the maker or breaker and the next few weeks will be critical.

The eyes will be casually on the economic data but it will be the corporate profit results and the outlooks for the respective companies that will hold sway with the market players that set the direction.

While Alcoa is always first out of the blocks, it won’t be until 17 July when GE reports that the market will start to react to the latest company reports.

If these are better than expected, the stock market players are off to the races. If it’s unclear where the companies are heading, we could see some sideways action for a while until the next quarter of results seals it either to the positive or the negative. 

Major rebound?

An AFR survey of equity analysts found the consensus was that the S&P/ASX 200 would go to 4,800 by 30 June 2010. We’re now around 3,800, so the experts are looking at a 1000-point gain over the year! You have to hope they are right but they can be wrong — history will show that.

One guy in the survey, Damien Boey from Credit Suisse, speculated the index could go as high as 5,500 and there's some history of bear market to bull market turnarounds that have brought with it big rebounds.

Good news needed
But let’s keep this in perspective. Using simple figures, the stock market has lost around 50 per cent at its worst. To get back to where you were, you need to see the market rebound 100 per cent! As we are now only up around 25 per cent, I think a run of better than expected news could easily support higher share prices.

The trick will be actually getting it. Watch this space for daily updates and tune into SWITZER on Sky News Business Channel at 7pm Monday to Thursday. See you there. 

For advice you can trust contact Switzer Financial Services.

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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