Stocks are still looking good

Founder and Publisher of the Switzer Report
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The Dow couldn’t manage eight days in a row in positive territory, but even though it fell on Friday, it only lost 20 points and ended way above the once troublesome 13,000-level at 13,232.62. The S&P 500 was just positive at 1,404.17, eclipsing a level not seen since June 2008 before the Lehman Brothers collapse.

I hate to quote Kath from the TV series Kath and Kim, but “I do feel it in ‘me’ waters” that stocks will keep heading up this year, despite some obvious needs for sell-offs.

Support for stocks

The S&P is up 11.65% this year alone and the Nasdaq has put on 17.28% and so there’s gotta be some days when sellers outnumber buyers, but the buyers will be buying the dips and that will help stocks over 2012.

And our stocks should be helped by at least one interest rate cut in the coming months, but I would love to see two given the weakness I’m seeing for both business and consumer confidence. Also, US strategists think the US dollar is ready to head higher.

“We do think this is a time for the dollar. We think it will last through the first half of the year,” Robert Sinche, head of global currency strategy at RBS told CNBC.

And this would be a nice fillip to our stocks, which have lagged behind the US market with our S&P/ASX200 up only 5.4%. This ordinarily would be a great two-and-a-half-month gain, but we have been miles behind Wall Street since last October and 9 March 2009. The S&P 500 is up over 100% since the 2009-low, but importantly, the S&P500 is now trading on a price to earnings ratio (P/E) of 14.5-times – the highest since July last year – but it is still below the 16.4-times average reading of the last 50 years.

Banks improving

I also like it that financials in the US are making a comeback with the sector up over 20% for the year-to-date and that’s the best performer on the US market. The weakness of US banks has been a big cloud over Wall Street and this revival is helping our bank shares as well as the index, which our banks dominate.

The recent US bank stress tests have been a plus for optimists hoping that Wall Street will go higher and help our stocks.

Good data

Meanwhile, US economic data remains good with the Empire Manufacturing Survey for the state of New York improving to 20.2 in March from 19.5 in February and this was above the experts guess of 15!

And there was good news from the European Union (EU), where retailers seem to be stronger than expected across the continent after department store chain, H&M, reported better than expected sales figures for February.

Meanwhile, industrial stocks were firmer in Germany after chemical maker K&S (+7.2%) issued bullish guidance for 2012. This adds to claims that the EU recession will be milder than the doomsday merchants were all predicting before Christmas.

I know Europe is the challenge out there, but if they prove to be less of a worry than we fear then this current broad-based rally on Wall Street could gain a hell of lot more with cautious investors and fund managers starting a stampede to play catch up.

This looks like a good time for the long-term investor who has maintained the faith – even if we still get some hairy moments this year.

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.

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