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Stuart Westhoff From Wholistic comments on the current state of the market

Wednesday, February 03, 2016


Is there any reason to be positive on stocks?

Right now there’s apprehension over the economic growth of China, the US and the world economy. If everyone was positive on these economies’ outlooks, commodity prices would be higher and groups, such as OPEC, would actually cut supply, knowing that businesses and consumers of the world can take higher energy prices. Instead, we have a lower growth expectation for these economies. Until that view changes, stocks will have a tendency to fall rather than rise.

Some recent rallies needed to be followed up by good news but instead oil slipped under the psychologically important $US30 a barrel level. The Beige Book put out by the Federal Reserve — America’s central bank — found that in nine of its 12 economic districts surveyed there was only modest growth. If it was spectacular growth, then Wall Street would be up and would keep going up!

The same goes for China — it needs to show that its transition to a more service-oriented economy will still produce good economic growth rates.

It’s funny that we’re focusing on Chinese manufacturing data and how its reduction has hurt iron ore and oil prices and the shares of BHP, Rio, Santos, etc. However, there are changes, such as the tourist numbers out of China to Australia, which this week were 1,013,700 in the year to November. This is the first time annual tourist numbers from the country have breached one million.

This shows us the work of a lower dollar that will help Australia’s economic growth. There are changes like this happening all around the world but markets often concentrate on old rules of thumb that maybe less relevant nowadays.

One big issue being ignored is the fact that one of the world’s most important business costs — energy — is falling and that has to be helping the bottom lines of businesses.

CommSec’s Craig James points out that for many families, the weekly petrol bill is their biggest outlay so the price of petrol has to be a plus for the economy, which (along with the dollar and low interest rates) should ensure our growth rate this year is good, which has to help job creation.

The Yanks have the challenge of a rising greenback but that’s because their economy is doing well. So the big hope for the next month — the time for the earnings show-and-tell — is that US companies, which have been employing large numbers over the past year, will actually come out with better-than-expected profit numbers.

It would help if China’s economic numbers start to look better too but that could be asking for too much in the short-term.

One final point. With interest rates so low and dividends still much higher, shares are still viable and the likes of fund manager, Kerr Neilson of Platinum Asset Management, aren’t worried about a cataclysmic China slowdown that has been spooking stocks this week.


Content sourced from: 

http://www.switzer.com.au/the-experts/peter-switzer-expert/is-there-any-reason-to-be-positive-on-stocks/


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