FYI | Nov 05 2014
By Peter Switzer, Switzer Super Report
Key points
- The Dow has reached a record closing high and the ASX/S&P 200 ended up the month 4.4%.
- Economic news out this week in the US should be good for its markets.
- November, December and January are historically the best months for shares.
We start this week with the Dow at a record closing high and the S&P 500 at a record high. The French CAC index and the German DAX finished Friday up 2.2% and the Spanish IBEX 35 put on 2.1%. The trigger for this big move up was the Bank of Japan (BoJ) targeting a monetary expansion of 80 trillion yen, instead of the planned 70 trillion yen.
The Yanks have wiped out their near technical correction and we need to beat 5,651 to wipe out our dive that started on August 27. However, this BoJ effect has yet to hit home here in full…
Rollover October
In case you’re wondering, October, despite its drama, was good for stocks. European shares fell 2.7% but US shares rose 2.3% to a new record high, Japanese shares gained 4.5% and our share market rose 4.5%!
Of course, we know stock markets don’t always follow logical scripts and I don’t like what our market can do on Mondays, left to its own devices, as it waits on a lead from Wall Street.
That said, I did like the way we finished on Friday at the high for the day. This is a positive sign and with the BoJ decision, it should give us another kick along, though we did get a bit of this news late on Friday afternoon. However we didn't get the BoJ plus Wall Street effect.
Clearly the big question has to be, how do we play this stock market for the rest of the year? Regulars know that I expect 2015 to be another good year for stocks but I suspect there will be a sell off ahead of the first US interest rate rise. My early money would be post-February, as the money market anticipates the rise sometime between March and June. The latter month is most favoured by Fed-watchers but if the run of US economic data surprises on the Schwarzenegger-side — huge and on steroids — then it could be a ‘spring uprising’ of rates. Excuse the pun.
Good times
So let’s focus on November to January and see what history tells us.
First up, the US mid-term elections are on Tuesday November 4 and it’s tipped that the Republicans could gain control of both houses, making Obama a lame duck President, which is seen as a plus by lots of Wall Street commentators.
The next jobs report for October will be released before the week’s end and 210,000 jobs are expected. But if it’s another boomer it could increase the excitement for US market indices.
The Yanks also get manufacturing and services sector readings on top of factory orders, so the pace of the US recovery will be in focus for stock players for the entire week.
Data will be the key determinant for this bull market and if the good news keeps rolling in, our stock market could easily sneak to 5,800. Some of my colleagues now think my 6,000 call is a long-shot hope but you won’t see me talking up this big call now, though I will crow if we fluke it.
AMP’s Shane Oliver is in my optimist’s camp, saying this over the weekend: “While my guesstimate of 5800 for the ASX 200 at year end is a bit of a stretch, it’s not out of the ball park anymore with the ASX 200 having risen 350 points in less than three weeks.”
The positives
But as I say, we need to see good, market-shocking news making headlines.
There has been some positive stuff that keeps me optimistic on stocks, so let me share it with you:
• The European bank stress tests have been a little better than expected.
• French and Italian budget negotiations could mean some extra fiscal expansion.
• Russia has agreed to send oil to Ukraine, which suggests a geopolitical threat to stocks from this region is less so now.
• Europe is weak but the recession prediction might prove premature.
• The fall in the price of oil helps businesses with costs and consumers with disposable income, which can impact company earnings directly.
• Strength for the US stock market is pushing the greenback up and our dollar down, which is down to 87.99 US cents, but economists like Oliver thinks it could be 80 US cents next year! That’ll help stocks.
• But this is my strongest piece of info to support my bullish view for November to January. The chart below shows that these three months are in the top four for average monthly returns for a long period of 1926 to 2004.
Conclusion? Go along for the ride and buy the dips!
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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