When I look at Wall Street having a negative day and see the Dow down just 0.08 of a point despite ordinary economic news and unimpressive company reporting, you know there simply aren’t enough committed sellers out there to KO this rally and secular bull market.
I think it has years to run, thanks to what I call the Lone Ranger effect, but I’ll be monitoring it daily to make sure that if creeping weaknesses emerge that could change my optimism, you’ll be the first to know.
But that said, let’s look at what could destabilize the rally, though I don’t think much can take out a secular bull market apart from a shock X-factor, such as a nuclear bomb or a leading financial institution collapsing and rocking the global financial system.
By the way, thanks to those who have congratulated me for some big market calls lately — it’s nice to pocket 2.5% gain or more when the S&P/ASX 200 index pops up 2.5% in a week.
Don’t be a duster
But in this game, you can be a rooster one day and feather duster the next. So, let’s look at the shorter-term threats and ask, as well as evaluate, how worried should we be?
I put the issues down to the following:
- Silly Europeans
- Silly North Koreans
- Silly US politicians
- Silly Fed officials
- Silly Chinese politicians
- The “sell in May and go away” types
- Australian voters on September 14
- An X-factor
In Europe, there’s an outstanding Italian election, though the economy often does better without an elected government. Spain looks a worry, but I’m told EU officials are less so, and the European Central Bank looks miles more credible since mid-2012. Europe is a big risk but I’m comfortable with what I see.
The North Koreans are nuts – socially programmed to be that way – but I still can’t believe they’ll try a nuclear stunt. Low level risk, but if I’m wrong, stocks will slump.
For the US, the $85 billion worth of spending cuts has been delayed until October. If the economy is strong, this could be OK for both the market and economy. There has been weak data recently but this is keeping the Fed in the QE game and helping stocks. What US politicians come up with could help or hinder stocks in October – I’m betting on “help” but I hate punting on the nincompoops in the US Congress.
On the Fed, they have some big mouths but Ben Bernanke is exceptional and so I’m not worried there.
China has a new leadership, so I can’t reliably rate their propensity for silliness but I’m not worried about them now. Better economic data would be good for my 5,500 call on the S&P/ASX 200 index for year’s end.
Vacation time
On the “sell in May and go away” phenomena – ie the crowd who do this for the summer break when they go holidaying, this isn’t always the case. I think there is momentum in the market to make May’s sell-off so shallow we might even miss it. Last Friday, Goldman Sachs put out a call saying the S&P 500 will spike up 20% to 2015. I love the length of this call as it reinforces my argument that this bull market has at least two years to run. I’d like to say three or four but that could be too bullish.
When it comes to September 14, I think a new government with a clear majority will be good for business, consumer and foreign investor confidence, let alone local players, and this will come out in the stock market. The reverse would dent out progress for sure.
Finally, an X-factor could rock this rally but, by definition, as I have argued before, you can’t predict an X-factor.
Sure, the mountain of debt will catch up with us one day but no time soon, thanks to Japan and the USA with their QE programs that will create economic growth and higher stock prices.
Goldman Sachs says the global economy is set to grow at a 3.3% pace this year and then 4% from 2014 right through 2016. If they’re right, it will be great for stocks!
In fact, you could say that the USA and Japan are riding to stock players’ rescue like the Lone Ranger and his trusty sidekick — Shintaro!
Important: 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. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report
- Penny Pryor: Clearance rates and sentiment indicators provide support
- Jason Huljich: Commercial property continues to provide upside potential
- Alistair Bailey: Art for money’s sake – Australian outlook
- Tony Negline: Get the borrowing structure right the first time
- Rudi Filapek-Vandyck: Weekly broker wrap – BHP and Newscorp upgraded
