August begins with a plethora of economic data both here and abroad, which not only will have a serious impact on stocks, but could change our attitude towards how our economy is really going. And as attitude affects confidence, it’s really important at this stage of the economic cycle.
After the stock market in July defied the headwinds of Greece and China to finish up 4.4% and economic trends looked more promising, the question can be asked: are our economy and stock market poised to surge? Or is this wishful thinking?
Confidence for both consumers and business has been on the rise and if August adds to the positivity, it could be the start of a nice finish to the year for both the economy and stocks.
This possibility comes with reporting season set to hot up this week. In coming weeks, how our companies’ bottom lines are faring, along with their outlook statements, will contribute to what happens to stocks. And, of course, what readings we get out of the economy will complete the picture and I’m hoping it’s attractive enough to get share players buying.
Of course, the readings I’m talking about include employment levels, the jobless rate, the flow of investment and, of course, economic growth.
By Tuesday, we’ll have seen the latest on house prices, job ads, the monthly inflation gauge, trade data, retail sales and the Reserve Bank will have decided either not to cut or raise interest rates. So, within days, our confidence about our economic future could be on the improve, provided retail doesn’t disappoint or the media doesn’t go too far stressing Sydneysiders with talk about housing bubbles.
As you can see, there’s some important data ahead over the next few days but Thursday’s unemployment number, along with the more positive employment stats, could be the critical clincher to make or break confidence.
Adding an international flavor and the Yanks get a snapshot of manufacturing, construction and the all-important jobs report, which often moves the markets.
If both economies send out positive vibrations that economic recoveries are believable and company reporting remains solid in the US and shows signs of improvement here, then stocks should head north.
Both stock markets will have to cope with the first rate rise, which many think will be September and this could easily spook stock players. My mail is that the rise will be small – maybe only a 0.1% hike! – and that kind of move is less likely to rattle stocks for too long. In fact, the first rare rise for the US will be a meaningful sign that the negatives from what we called the GFC (and they called the Great Recession) are starting to be well and truly buried.
This US action could take the US dollar higher and ours lower, which will annoy Aussies addicted to overseas holidays but it will help our tourism industry, our unemployed and our overall economy.
As you can see, this is a pretty important week. If it fails to deliver what I’m hoping for, then we’ll be forced to wait another month for the making of a stock market surge. One is out there for the Aussie stock market just waiting to happen but the local economy, our companies’ profits and external events all need to conspire to force media outlets to tell a consistent, positive story about our economy and our stock market.
And boy would I love to see that! However, that might take some time.