With December more than half over and the end of year nerves, and then January, the AMP’s chief economist, Dr Shane Oliver takes a look at what the market could do in the next six months.
He says that while shares have been range bound since mid-October this is natural given the 50% plus rally from March and given that the key US share market is up against technical resistance at around 1120 on the S&P500 (which is the 50% retracement of the October 2007 to March 2009 bear market).
Several considerations suggest that shares are likely to break higher in the weeks ahead:
First, the fact that they have just ranged sideways over the last two months without a sharp fall suggests there is underlying buying support for shares.
Second, December and January are normally strong months for shares with the so-called Santa rally normally kicking off from around mid-December on the back of New Year optimism, the investment of bonuses and at a time of low trading volumes.
Finally, the broad macro backdrop remains favourable with improving growth and earnings, still low interest rates and still plenty of cash on the sidelines.
Current concerns about public debt levels in several countries are likely just an inevitable hiccup along the recovery path.
So our assessment is that after a two month pause shares will soon resume their recovery and that this will continue through 2010 supported by the continuing recovery in economic activity and profits.
By the end of this year we expect the Australian All Ords and ASX 200 indices to have pushed higher, with 5600 expected for the end of 2010.
