The local S&P/ASX200 index is up around 214 points since the start of the year, closing at 4,270.4 on Friday, but this still seems a long way from the 5,000-level some expert optimists have been looking forward to by year’s end.
On these numbers we are up about 5% this year, but we still need to beat 4,608 by June 30 to ensure we finish in positive territory for the financial year. Since the global financial crisis (GFC), the financial years 2009-10 and 2010-11 have seen the index’s gain combined with dividends top 10%, which conforms to the average expectation financial planners – like yours truly – have come to expect.
Sure it would be nice for the calendar year to deliver the positive returns on cue, but in reality, we pay tax on our investments and for our self-managed super funds based on the financial year, so I’m more concerned about the returns as at June 30.
Will stocks make it?
So will we get to 4,608 and can we even put a few hundred points on to keep it positive on a capital-gains basis? Remember, term deposits are at 6% at best, but most are below this benchmark and that means your dividends could easily top them, provided you have played that kind of game.
Once again, can we beat 4,608? I think there will be some headwinds such as:
- The old ‘sell in May and go away’ tendency on Wall Street, though it doesn’t always happen.
- Evidence of the expected European recession; if it’s worse than expected it will make it tough.
- The relatively unexpected China slowdown; watching the severity of this and the Chinese government’s response will be important.
- The course of the US economic recovery, which has beaten the majority of economists’ expectations – but not mine – however, some economists I respect think the recovery could slow down a tad.
- And of course, there are European issues out there including Spain, which the doomsday merchants are now hoping could be the big negative, left-field curve ball that could take off the egg that has been left on their faces.
The sell-off
The Yanks have had a big start to 2012, with the Dow at 13,080.73 and that’s up 7.06% for the year, but it did give up 1.15% in the past week, which was the worst week for the year. The S&P 500 is up a whopping 11.09% over this time, which makes me think a bit of a sell-off is to be expected; when you look at the Nasdaq’s 17.76% it screams that some down days have to be on the cards.
Right now the VIX, which measures stock players’ fears, is a low 14.82 – down 36.67% this year. This number alone shows how the spook factor has been taken out of the market on a half-year on half-year basis.
The big challenges for our market are China’s impact on stocks such as Rio Tinto and BHP, and the currency, which is easing and would be helped by the Reserve Bank of Australia cutting rates two more times this year.
However, while we might get one cut before June 30, I can’t see two and so as we approach the end of the financial year deadline, getting into positive territory for the S&P/ASX200 index could be a closely run thing. Ironically, I reckon on a calendar-year basis, we should have a ripper of a year.
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Also in the Switzer Super Report
- Paul Rickard: Road test: five SMSF bank accounts compared [1]
- Lance Lai: Chart of the week: an engulfing bear emerges [2]
- Rudi Filapek-Vandyck: The broker wrap: two buys and three sells [3]
- Tony Negline: How to move a business property into your SMSF [4]