The only question investors have to ask today is: Do you believe in the Wall Street rally on Saturday morning, our time? The S&P 500 has actually spiked 50 points since Thursday, which is big considering it is now at 1864.78.
I have to say I loved the fun markets have been having with the S&P 500 where 1812 looks like a critical resistance point, which has given light to 1812 overture references!
The return of positivity started on Thursday, US time, when the United Arab Emirates oil minister alluded to a possible OPEC oil production cut. It helped Wall Street spike but there was not much credence given to the comment as we sold off horribly on Friday.
But the Yanks got up again on Friday, ahead of a three-day weekend and instead of playing it safe, which often happens before a long weekend, they bought big time.
The Dow was up 313 points (or 2%) and the S&P 500 rose 35 (or 1.95%). The loss for the week for the latter was 0.81% and that has given rise to questions like: “Can you trust this rally?” and “Is the worst of this sell off over?”
Helping the newfound positivity was Deutsche Bank saying it was going to buy back $5 billion worth of its bonds, which saw its share price spike close to 12%. This helped European stock markets.
DB started the banking crisis questions last week, so that show of strength was a nice move.
Meanwhile, oil continued to rise in price on Friday and it was a beauty, with West Texas Crude up 12%!
This is all good news, which should help our stock market rise but Monday has a few problems.
First, China comes back from its weeklong New Year holiday so investors there might want to dump some stocks. After all, our market was down 4.24% over the week, so let’s hope the US burst of optimism offsets the negativity that persisted for most of last week. It should be added that the S&P 500 was only off 0.81% for the week.
Second, the Yanks are on a public holiday so we won’t have a lead from them and us left to our own devices for two trading days can be a worry.
Third, the European Central Bank’s President, Mario Draghi speaks on Monday and while he has helped stock markets in the past, saying things such as “whatever it takes”, he could now be seen as a “too much talk and not enough effective action” Mario. If he does not impress the markets on Monday, then he could spook them even more.
On the plus side, for those optimists hoping the worst is behind us, is the growing number of experts who think oil, interest rates and stocks all set important lows on Thursday.
I liked this from Scott Redler of T3ive.com who told CNBC: “For the first time in a while, it’s just as hard to be short as it is to be long, while for most of 2016, the bears and sellers have been in control.”
And I liked this from Tobias Levkovich, the chief US equities strategist at Citigroup who thought out loud on CNBC with: “Do we have a global meltdown? I don’t think so. You need an exogenous shock to create it.
“We just don’t have the pieces of the puzzle that get you to recession. We would need credit to get much worse and more broadly. We would need hiring intentions to fall.”
If more investors and key market players start to believe his analysis, as I do, we can see this market turnaround but we need a run of unambiguous good news — economic and earning data as well as smart things said by the likes of Mario Draghi and OPEC.
By the way, an OPEC symposium on energy outlooks happens on Tuesday and this could help or hurt this new market optimism.
This is my wish list, and it might be a pipedream but if it happens, this negativity will turn to positivity quick smart. And let me throw this in from Levkovich, who says the selling is “overdone” and his so-called panic/euphoria model shows a 97% chance the market will be higher a year from now.
I will run with that but I hope it’s a damn lot higher!
If we are at a turning point with all of this negativity, it’s buy-time for the banks, BHP and Rio but that still remains a brave call.
The careful investor waits for a trend to emerge before getting on board beaten up stocks, while the speculator might move today but he or she has to be prepared to cop a loss. This is the difference between investing and speculating but given how far these stocks have fallen, you could easily wait until the trend becomes your friend.
Against these good tidings, I should inform you that the Bank of America Merrill Lynch has cut its full-year target for the S&P 500 from 2200 to 2000, as they worry about growth in the US.
That said, from here that would still be a 7.2% rise and if we throw in dividends, then this is around a 10% rise. Hopefully, we can decouple from Wall Street this year and play a bit of catch up and then we might even do better than the Yanks with our higher dividends and franking credits.
What I am hoping for is a good reason for Wall Street to keep rising, albeit at a slower pace than us.
Be clear on this: we are in the hands of news flow and if good news can start offsetting bad news then we’re off to the races but at this stage this outcome is no odds on certainty, unfortunately!
To be honest, I am in a buying mood but I know I’m letting my speculation tendencies win over my more careful investing side. Always be careful of that kind of thing.
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