These are weird times on the markets considering we have just commemorated the weekend when global financial and stock markets, as one Big Four banker CEO once told me, stared over the abyss.
Ironically one year before on 9 October, both the Dow and the S&P 500 finished at their all-time closing highs. The Dow finished that day at 14,164.53, while the S&P 500 closed at 1565.15.
Right now we are a long way from these levels, but this week and the ones to follow in the USA will become market makers or breakers with major US corporations reporting.
Last quarter companies – there and here – surprised, beating analysts’ expectations. But in the USA, in particular, the better profits came from cost cutting.
This gave scope for the doomsday merchants to predict that the US consumer would let earnings down with the next quarter’s results and that will hit the stock market.
However, retail news in the States is surprising on the high side with close to 80 per cent of the top 30 retailers in the same store index beating forecasts!
US market expert Barton Biggs thinks we are only halfway through the bounce. He argues the slump was huge and so too will the rebound be.
On Wednesday, JP Morgan Chase reports while IBM, Goldman Sachs and Citigroup ‘fess up on Thursday. The biggies – Bank of America and General Electric – come out on Friday.
Throw in some important economic data like retail and industrial production and this will be a huge week!
Meanwhile on the local front, good economic news continues with total new lending commitments — that’s housing, personal, commercial and lease finance — rising by 2.8 per cent in August. For the year, lending is up 10.2 per cent and that’s the best annual growth rate for 19 months.
This adds weight to why the Reserve Bank raised interest rates last week. Over the rest of this month, the economic and market data will either confirm the predictions that the RBA will raise again on Cup Day or hold fire.
If history can be trusted, and that’s what economists and economics commentators are using to make these forecasts, then the Reserve will want to do some rapid fire small interest rate increases.
However, if inflation comes in better than expected on 28 October and other economic readings come in worse than expected, the Big Bank could delay the next rise.
That said, the market and economic stars and planets are in alignment at the moment with even Macquarie equities tipping that the ASX/S&P 200 is set to rise by some 700 points from current levels and a total return including dividends of 20 per cent for investors.
If that should happen, that would coincide with a very solid economy on a roll and one likely to come with considerably higher interest rates.
Economics is sometimes called a zero sum game, where a winner is matched by a loser, and it is also called the dismal science — the likely interest rate scenario explains why!
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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