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Market maker or breaker

Peter Switzer
20 July 2009
One big week down in the US company reporting season, and it was good enough to help Wall Street put on seven per cent. But we have another really big show on this week, which will determine whether our share prices head up or down.

While you were sleeping on Saturday morning, GE reported and though it beat expectations on earnings per share, the wise guys in the market think the company is still vulnerable to overall credit concerns in the USA.

There are bears and short-sellers telling us to worry about credit card defaults but this flies in the face of the reports from credit card outfits such as American Express that suggested card delinquencies were getting better. That’s great news and you have to hope it holds. By the way, JPMorgan Chase’s CEO Jamie Dimon also noted that delinquencies were stabilising. 

State of affairs
This comes as unemployment news is still putting a break on optimism. Those who can’t get past the 9.5 per cent jobless number for the USA know it’s heading higher and that could KO confidence and this rally.

We will see the latest leading indicators for the USA and the most recent consumer sentiment number later this week.

By the way, a lot of the bad jobs news comes from the state of Michigan where Motown or Detroit resides, and the unemployment rate there is a whopping 15.2 per cent, which links to the bankruptcies of GM and Chrysler. However in the slump of 1982, the unemployment rate went over 16 per cent!

Five states saw the rate fall while seven recorded no change and six set highs. 

More companies report

In other company reporting news, IBM beat estimates and raised outlooks while Bank of America did the first but put out a warning on its outlook. Citigroup did better than tipped, but not enough to excite traders. Google did not impress and Mattel saw profits rise by 82 per cent, despite Barbie putting in a shocker in terms of sales.

A worry some analysts and traders point out is that profits are going up on poorer sales for many companies because costs have been cut. Earnings need to reflect improving sales and this could stall the market’s advance. Eventually, the sales results will be pulled out and could be the reason used to buy or sell shares going forward.

That’s why this week could be market maker or breaker. Around 30 per cent of the S&P 500 and 40 per cent of the Dow 30 play show and tell for the market. The big names include Coca-Cola, Morgan Stanley, Merck, Boeing, Caterpillar, McDonald's, Microsoft, and Apple.

"I'm going to have to extend to next Friday (24 July). We've got things cooking on the 21st and 22nd that I want to take a look at," Art Cashin, director of floor operations for UBS Financial Services on Wall Street, told CNBC.

Watch this space

Another important watch for me this week is the performance of Fed Chairman Ben Bernanke who fronts Congressional committees. He is expected to talk about the Fed’s exit strategy and he could be asked to explain why the Fed thinks US growth will go to 3.8 per cent to 4.6 per cent in 2011.

That’s big and could be a good reason for being in stocks by 2010 as a stock market reflects what’s expected in six to nine months time. In simple terms, we have fallen 50 per cent in the crash. We need to rise by 100 per cent to get back to those levels, but we have only come back 25 to 30 per cent. This comeback reflects the expected slow growth of next year and possibly before the market can start factoring in these big US growth rates of 2011. Watch this space!

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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