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Date Posted: Monday, November 29, 06:03:11am
Author: Santa or no Santa?=by Peter Switzer According to the LA Times this was "the biggest employment increase since May 2006".
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Personal Finance > Columnists > Peter Switzer > Archive > Santa or no Santa?

Columnist Peter Switzer
Santa or no Santa?
by Peter Switzer
posted on Nov 26 09:09am
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Peter SwitzerFrom what I can see, the muddle through thesis for the US economy is working out but the big watch has to be on the European's handling of their debt and the potential threat from terrorists and other madmen in this very complicated world we live in.History says the Yanks can set up world stock markets for a Santa Claus rally but maybe Christmas has come early this year for share players or else it could be scrooged by a North Korean killjoy.

This article is being posted from New York City and only yesterday I had the treat and honour to film, as well as conduct, interviews in the press gallery of the New York Stock Exchange. This hallowed space hovers over the booths of traders who have been made famous in the images of the Crashes of the 1930s, 1987, 2001 and the latest of 2008.

The news from abroad

Setting up my interviews yesterday for my Sky News Business Channel program, which will be shown next week, I nearly did a piece to camera, which would have gone like this: "Well, it's cold outside on the corner of Wall and Broad Street, which is the well-known corner of the New York Stock Exchange and while it's damn cold out here at this time of the year, inside the most famous bourse in the world, the shares are usually hot at this time of the year!"

Call me a psychic or just plain lucky but I opted out of that little scene-setter and looking at what happened on Wall Street yesterday, it was a good bit of timing. However, could Santa still visit the investors whose stocks hinge on the lead from the NYSE or has the gift of higher share prices already been delivered following the rumours and the arrival of QE2, the mid-term election results and the latest round of very positive company results?

End of year rally?

Be clear on this, history favours a big end of year rally for the Dow Jones index, but can history along with better economic developments States-side outweigh the spookiness of North Korea's Kim Jong-il, whose crazy leadership thought it a good idea to bomb South Korea?

This took the Dow Jones Industrial Average down 142.21 points, or 1.3% to 11,036.37 while the S&P 500 index shed 1.4% to 1180.73. This was a significant fall but not wrist-cutting but how bad this incident gets will depend on how it's handled.

US President Barack Obama has come out strongly against the attack after a South Korean island was bombed with artillery shells, killing at least two people.

The market response was predicable but I was fascinated by the take on the matter by MF Global precious metals analyst Tom Pawlicki on CNBC who pointed out that "looking at history between North and South Korea, this one looks like nothing compared to some of the other provocative acts".

In 1987 some 115 South Koreans were killed in a bombing incident and 46 died earlier this year.

"A couple of artillery shells won't seem like much in a couple days," he said. "I wonder how long the safe haven bid in gold will be maintained."

Euro-debt concerns

But this wasn't the only bad news out there with Ireland and Portugal also making traders jumpy.

Ireland's acceptance of an EU bailout package and its central bank boss telling everyone that the country's banks have a 'For Sale' sign on them didn't help Irish stocks on global markets. As always this kind of news is adding to contagion concerns with many players pondering the stability of Spain, which is a significant economy. If it challenged its 'too big to fail' tag, it would rock markets, even if the EU's support program eventually could settle market nerves.

So, as you can see there are plenty of threats to a happy Christmas end to the trading year, despite the fact that history points to a nice finish.

Traders often try to window dress their investments as the calendar year peters out and the third year of a US presidency, which will be next year, typically is good for the stock market, And remember markets tend to get six months ahead of themselves.

Economic outlook

In addition, the economic outlook is tipped to be better by mid-2011 and this week the Yanks learnt that their GDP was growing better than expected with third quarter growth up from 2% to a revised 2.5%.

Also while the national jobless figures have not fallen quickly enough to excite stock markets, the unemployment rate is starting to fall in some of the states in the most economic trouble.

Even California where unemployment remained stuck at 12.4%, which is the third worst US state for joblessness, saw 39,000 jobs created in October.

According to the LA Times this was "the biggest employment increase since May 2006".
Another good sign was the health of retail stocks earlier this week with the MasterCard SpendingPulse national survey of retail and services sales up significantly on a year ago.

Steady improvement

As you can see, there are plenty of headwinds for Santa in trying to deliver a stock market rally for Christmas but against this there's a steady improvement in the key economic data that could define the health of the US economy next year.

From what I can see, the muddle through thesis for the US economy is working out but the big watch has to be on the European's handling of their debt dramas and the potential threat from terrorists and other madmen in this very complicated world we live in.

That said, I'm still putting my money on, and I say this literally, steady improvement for share prices of good quality companies over 2011 but I'm not expecting flash returns.

Click here to visit Peter Switzer's website
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