For a change, Wall Street has had to digest relatively bad news and the doomsday merchants, who to date have been wrong, are trying to spook the market. Now given a pullback from rising share prices is overdue I think the stock market will oblige but forget share price and economic Armageddon — those days are over.
Right now, there are three camps predicting the market.
There are those who see ups and downs but where the ups outnumber the downs and a slow rising market prevails.
Then there’s the camp that says September and October will bring sideways movements until the next reporting season but some of the recent gains will be given back. And then those who see a big sell off.
One US commentator, Dan Deighan of Deighan Financial Advisors, told CNBC that he thought the market could fall 25 to 50 per cent because the economic indicators in the USA aren’t good enough to support the rally. His sparring partner on the spot, Rob Stein, managing partner at Astor Asset Management, is in the 'go nowhere for a while' group but can’t see a massive sell-off.
On the last trading day in New York last week, disappointing economic news worried market players. Consumer prices, as well as consumer sentiment on Friday, along with a disappointing retail report the day before, saw the Dow lose 77 points to 9,321. The Nasdaq gave up 24 points to end at 1,986 while the S&P 500 index shed nine points to finish at 1,004.
It might be an idea to put the market rises into context. In simple figures, the Dow is up six per cent this year, the Nasdaq is up 26 per cent and the S&P 500 has put on 11 per cent.
Since the 9 March lows, the Dow has gone from 6,547 to 9,321 and that’s a 42 per cent rise. The Nasdaq has risen from a low of 1,269 to 1,986 spiking a whopping 57 per cent. To complete the post-boom picture, the S&P 500 has jumped 48 per cent going from its low of 677 to its latest close of 1,004.
At the same time, the volatility index has come back to 24.33, which is getting better. A teen-reading is more normal but when the you-know-what hit the fan after Lehman Brothers was allowed to fail, which froze up the credit markets, this ‘fear index’ measure shot up over 80!
The complete journey
We are a long way from those times and this is one reason why I can’t see a 50 per cent sell-off of shares. Also, you have to understand our complete journey into share price madness and mayhem. Let’s just look at what happened with the S&P 500 index since October 2007. The index hit a high of 1565.15 on 9 October 2007 and then after Lehman failed in September 2008, the penny didn’t drop to rock bottom until 10 October of that year when the index went to 899.22. Well, that’s what we thought but another sell-off in early 2009 saw the S&P 500 go to 677.
So, let’s get this straight, the S&P 500 index is now at 1,004, which means the Yanks are still only a 100 or so points from where we were when one former CEO of a Big Four Aussie bank told me we stared over the financial abyss!
Then, there were more experts talking great depression not a great recession. Few people believed the US would be heading into a second-half 2009 recovery. No one thought China was going to grow so typically Chinese, as they have.
Making a comeback
Few people would have thought Australia could have dodged a technical recession and that the Reserve Bank Governor would have been talking about interest rate rise by August 2009.
Times have improved and we now know both France and Germany are back into positive economic growth territory. US company reporting season came in on the much better than expected side and, so far, Aussie companies have followed the good vibes script.
Sure the fall in the Reuters/University of Michigan reading of consumer sentiment fell to 63.2 after hitting 66 in July and consumer prices fell, which is not a positive shopper sign, but industrial production in June actually rose for the first time since December 2007.
There are plenty of good omens out there to counter the bears, but Bank of America at $US17.39 and attracting positive analyst comments suggests the US economy is heading in the right direction from the Lehman starting, or should I say breaking point?
I expect to see some profit-taking from the professionals, but I can’t see a big window for buying big dips in the market. There’s a floor in the market and for the S&P 500, I reckon it’s a long way from 677.
And if you think we have come too far too fast, remember the S&P 500 started at 1,565.15 and it’s now only around 1,004. The next 50 per cent will take a lot more time to materialise.
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