22 February 2024
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Confidence is the key

Peter Switzer
1 July 2009

If the local stock market does not fall today that will be a big surprise after Wall Street headed south following a surprise drop in consumer confidence. This coincides with the end of the quarter and it follows a big quarter for stocks and a sensational four months since the S&P 500 index in America hit its lows.

The rise has been as high as 40 per cent but has trimmed back to around 36 per cent! That’s big and is possibly an overreaction, though a significant rise was needed following the excessive sell off after Lehman Brothers failed.

Consumer confidence is an important indicator, as the American economy needs the US consumer to start buying again and stop saving as much as they have lately to ensure a second-half economic recovery kicks in.

Importance of history

By the way, I have always pushed the history that after a major crash of US stock markets there tends to be a 26 per cent bounce in the stock market after the economy reaches the low on its consumer confidence reading. That was in February and yes, history was a good guide given the big jump in US shares that has then sparked stock market confidence right around the world.

New York, New York

This follow the leader link is why I have become a TV junkie watching US business television programs from Wall Street every morning. Through the medium of TV I have spent around two hours a day, five days a week in New York since the crash happened in late October 2007. It has been a source of enormous anxiety dealing with so much bad news until 9 March this year when it turned around.

Positive forecasts

On my program — SWITZER on Sky News Business Channel  — AMP’s Shane Oliver said he thought the bull market started on this day and while he thinks there will be market consolidation at these levels, he sees a possible 18 to 20 per cent rise in the stock market next year!

Gee, I hope he is right. It makes sense if the US economic recovery kicks in and the global economy follows in 2010 as most forecasters believe.

Until we see the next round of company results in the USA, the market will be moved by economic numbers and that’s why this fall in consumer confidence is important.

The Volatility or Fear Index did rise a point to 26.35 following the news, but this should not be overrated in its importance.

Year-end rallies

Of more importance is the recent Reuters survey of more than 150 equity strategists from New York to Sydney, and CNBC reports that they saw the S&P 500 rallying another eight per cent by year-end.

Our market is tipped to rise by six per cent and as CNBC noted: “Remember, Australia has been weathering the economic storm better than much of the globe.”

Ups and downs

On the subject of consumer confidence, it was the Conference Board's reading that fell to 49.3 in June from 54.8 in May, however State Street's and the University of Michigan’s measures of consumer confidence rose!

In business, as with most things, confidence is the key. As more and more experts line up as being more bullish and less bearish, failing some surprise shock to the system, we’re heading up, even though there could be some backward steps along the way. 

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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