Trying to work out what’s happening on the stock market on a daily basis underlines how crazy it is to expect too much from the index readings nowadays.
The combined uncertainty of Europe’s debt problems, which now features Spain – one of the five little ‘PIIGS’ nations (Portugal, Ireland, Italy, Greece and Spain) – and the big unknown of what the Greeks might do on Sunday at their national elections, are over-influencing stock markets right now.
Unfortunately for long-term investors, this has created a traders’ market where the smarties are making short-term profits by being positive one day, negative the next and then going back to positive. However, next week could – and should – be HUGE because we are likely to see either a big rally or a big sell-off, so brace yourself.
Sure, the market could confound us with so precious little, but I suspect if the Greeks vote in a coalition government that will support the euro and work with the current bailout package, then stocks could soar.
But of course, this is a double-edged sword and so if the Greeks play the socialist card, which will add to uncertainty for Europe, then we could see a crash like the one we saw last August and September.
Greek banks are reporting that some €800 million a day is being milked out of accounts as Greeks prepare for the worst, but if the election brings better-than-expected news for the euro, then this could be reversed.
I’m aware that a hell of lot has to be done in order for Europe to please the movers and shakers who determine the stock market’s direction, but week-by-week a firewall is being built around Europe’s debt and banking problems. Unfortunately, the work rate is akin to old-fashioned Aussie unions from a pre-Keating age.
Some investors might worry about China’s economy, but I think that country will successfully re-stimulate itself. I also think the US economy’s slowdown will be a short-term issue as better news from Europe emerges.
Either way, what the Fed could do with a QE3 (quantitative easing package three) play would ensure economic growth stokes up, taking stock prices with them later in the year.
I know the US election and the so-called ‘fiscal cliff’ awaits the Congress and this could result in an impasse, meaning automatic cuts will be applied. All of this could be a new threat to the markets, but these are lower order concerns compared to Europe.
CommSec’s Craig James has the S&P/ASX200 index heading to 4,600 or so by year’s end, which would be a nice rise, but it could be higher if all of our market-worrying ducks end up flying.
So I’m gambling on the Europeans coming up with a better debt plan, the Greeks voting to keep the euro, China growing faster and the Yanks voting in a new president who will also control the Congress. This will power a Santa Claus rally, which could be a precursor to a big rally in 2013.
Now of course, a rally could come earlier, but that’s the kind of gamble we who punt on stocks will have to make.
Good luck with it and I really hope I’m right. The big test comes on Sunday as Greece goes to the polls. Go the Greeks!
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Also in the Switzer Super Report:
- Lance Lai: Chart of the week: is it time to invest in gold?
- JP Goldman: Tapping into emerging market growth
- Andrew Bloore: Roll any termination payment over now