So the optimists have beaten up the pessimists and our portfolios are now up around 8% since the start of the year based on the S&P/ASX200 index. The index is now at 4,408.3 and is up 10.6% since the most recent low of 3,985 on June 4.
In the US, the Dow Jones index is at about 13,570 and near its all-time closing high of 14,164.53, but we are still a long way from our record close of 6,828.7 on November 2, 2007. These comparisons partly explain why I agree with Phil Ruthven of stats collector IBISWorld, who argues that there will be a big pop – over 40% – for our stocks when the worst of news is behind us.
Ready to run
I think that process is happening, though there are still challenges out there, such as China’s recovery, the US election, the US fiscal cliff issue and what the Europeans get up to.
So far, the Europeans are playing ball. Over the weekend, there was some good news on the Spanish bailout front, which sent the German DAX up 0.84% and the French CAC 40 up 0.59%, which I like.
On the plus side, I like what an unusual index – the Baltic Dry Index (BDI)– is telling me. This is a forward indicator of world trade as it monitors shipping movements of dry-bulk commodities such as coal and grains and tells us something about industrial activity.
Earlier this year, the BDI was clobbered – plunging 56% according to CNBC. The good news is it has risen 14% in the past week! The index has been a good pointer for what is going on in China, but it’s still early days. Even so, I like what I see.
On the flipside, there are suggestions the increased shipping activity could reflect a rush ahead of any potential Middle East showdown between Israel and Iran, which is becoming a topic of concern in recent times.
Here are some other things I like:
- The VIX or fear index is low at 14,
- Iron ore prices rose 14% in three days last week,
- The S&P 500 index in the USA is up 16.7% for the year to date, and
- The short-sellers are scared of the QE3 stimulus package, meaning they could be worried it just might work.
Against this I’m worried about:
- The US election,
- The US ‘fiscal cliff’, which might need a good election result and a compliant Congress to avoid calamitous results,
- Europe’s handling of countries such as Greece and Spain remains a big question mark, and
- My biggest worry is China and the Shanghai Composite index, which has been very negative lately.
My main focus
Since May, the Shanghai Composite index has dropped from around 2,450 to 2,020 and while it kicked when Europe and the European Central Bank got their bailout act together, it has resumed its decline.
Now this could be ahead of a leadership change, but it has to be economic as well. I want to see the leadership change next month and some stimulation announcements. If that happens, I will be more relaxed, but China is now my main focus.
I think they won’t let the bull team down, but I’m paid to be objective!
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