The big question for self-managed super fund (SMSF) trustees who are active in the market or who actually trade from time to time, is, will we avoid a big sell-off this year?
Watch out for…
Small stock dumps have to be expected, but if they are only small, it adds to the chances that 2012 will be a positive year for market players.
This consideration comes as more negative news about Germany and its likely reaction to more bailout money for European Union (EU) debtor countries begins to surface. And clearly, the market could get spooked by any bad developments out of Italy or Spain in particular, and more generally, from any of the PIIGS (Portugal, Italy, Ireland, Greece and Spain).
And there are elections in Europe this year, with France and Greece to be watched closely for what new governments might say about the debt deals and fiscal austerity agreements thrashed out recently. Also throw into the mix ratings agencies, the price of oil and the Middle East issues that have the potential to be curve balls that could find out the ‘batting skills’ of stock players.
Then throw over all of this the historical inclination summed up in the US market maxim “Sell in May and go away,” and it means you have to be cautious about what lies ahead.
The good news
That out of the way, at least the present continues to defy doomsday merchants with the S&P 500 ending last Friday at its best level since June 2008. The index is now at 1,365.74 and is up 8.6% for the year, and so a sell-down should eventually happen, but the size of it could determine whether we are nearly out of the woods with the worst behind us or whether we rerun 2011 with a big slump in the middle of the year followed by a late year rally.
For the record, the Nasdaq is up 13.77% while the Dow is up a more sedate 6.26%. The S&P/ASX200 is up a modest 5.5%, which is actually a great start to a year, but if there are sell-offs overseas we might lose our gains pretty easily.
That’s why we need to see a sustained flow of good news out of Europe.
The US continues to help with the Thomson Reuters/University of Michigan’s consumer sentiment index hitting the best reading in a year at 75.3. But the focus is on Europe where the main game is what the European Central Bank (ECB) does next week and where EU banks are expected to be thrown another lifeline of liquidity. This is a big story and it now looks like Europe is following the US path of spend, lend and prosper, and we can sort out the debt issue later as time is critical right now.
Another good piece of news over the weekend was that Germany is softening its position on bailout funding, which means the EU could have about US$2 trillion worth of support. A G20 meeting over the weekend in Mexico could shed more light on this subject. In 2008, the G20 found a trillion dollars and now they look set to double their efforts!
“The plan is to merge Europe’s temporary and permanent bailout funds, the European Financial Stability Fund (EFSF) and the European Stability Mechanism (ESM), to create one €750 billion (almost $1 trillion) fund. Increased International Monetary Fund (IMF) resources would back that up,” a Thomson Reuters report explained.
Happily, I’m seeing more cooperation between parties for the EU rescue and that could provide a solid platform for a European economic rebound later in the year that will feed into stock markets.
“Everyone in the eurozone and even in the European Union is reasonably happy with combining the ESM and the EFSF, even Germany, but it is too early to say if this will be decided at the EU summit at the beginning of March,” said Margrethe Vestager, economy minister of current EU president Denmark.
This is why I’m cautiously positive about the investing prospects for 2012. Go the Europeans and go the G20!
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.
Also in the Switzer Super Report
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