FYI | Jun 12 2013
By Peter Switzer, Switzer Super Report
So what gives with the US stock market, and how do we play it to get our investments in our market right?
In my perfect world the US economic recovery starts producing over 200,000 jobs a month and that means the Federal Reserve starts to taper its $85 billion quantitative easing (QE) program.
Good economic news means QE is not needed so much anymore which would lead to a sell-off of stocks. Eventually though, the power of positive economic news offsets the negativity of less monetary stimulation that has been partly pushing stocks in the USA higher and higher.
However, last Friday, the Yanks only created 175,000 jobs in May, though only 170,000 were tipped by the expert economists surveyed by Reuters.
Market reaction
So there was good news but not great news, but how did Wall Street react on Friday night? Try this — the Dow had the second best day of the year! The index was up over 207 points to 15,248.12 — only 161 points off its all-time closing high of 15,409.39! That is only a measly 1% and looks ridiculous compared to us.
We hit our closing high on 14 May at 5,221 and we were at 4,737.7 before the Queen’s Birthday weekend which means we have lost about 483 points or 9.25%. This screams out loud — this is the buying opportunity Switzer has been talking about. Helping our cause to see our stocks take off is now the softer Aussie dollar, which at the time of writing was 94.53 US cents. This will help exporters and all of those listed companies that have been struggling under the weight of the too high currency.
If I could be confident that the Yanks would not engage in stock dumping I would be telling you to buy now but there is that overdue sell-off which makes me think that if Wall Street falls we will play follow the leader.
Outlook for stocks
So how will I play it from here?
Some of the US analysts I respect think the improving economy will be good for cyclical stocks going forward. Others say the market could track sideways which would not hurt my view that we are in a buying opportunity at home.
Meanwhile, Sam Stovall of S&P Capital IQ has raised his S&P 500 index target by 10% for the year and supports my view that the easing up of QE will hurt stock prices but it will be seen as a buying opportunity in the States and a rebound based on better economic recovery news will drive it all.
I am a little worried about China for the first time and Japan has been a bit of a concern. However its market shot up 5% on Monday on a better than expected GDP number.
By the way there are some who argue that QE is keeping money on the sidelines because it looks like an emergency measure and when it tapers and then ends, the money will flow into stocks!
For the long-term
I think we are in a secular upward-trending market and so worrying about the month-to-month moves of the market could make you feel stupid in one year’s time.
I maintain trying to time a market is not good for your nerves, your sleep or your hairline, so look at the companies you like after this 9% sell-off and start thinking about loading up for what the prices will be in 2014, not 2013.
That’s what I am going to do and if they fall some more — I will buy some more and that’s because I only buy companies I want to hold for the long-term because they pay nice dividends and they are great businesses.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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