Market Wrap - Week Ending Friday 6th June 2008

By Jason Fittler

Last week as detailed in the below chart we continued to trade in the trading range with the market bouncing off the bottom of the range on Friday. What does this mean? In short the worst is not yet over; at this point we expect to see some bad news come out over the following months. I would expect to see the market dip below the trading range and even get back to the 5100 level before we start to see a recovery in earnest.

Why so negative?  There are a couple of key issues right now.
 
1. We are coming up to our key reporting season. This is a chance for companies to bring out any bad news while the market is already down.
 
2. The US dollar is set to fall lower under increasing pressure due to the sub prime fall out. Further write offs are expected in the housing sector in the US and consumer sentiment over there is at the lowest levels in years.
 
3. We are still spending too much.  With our inflation now over 3% I would expect to see further interest rates raises, couple this with high oil prices here to stay and I would expect a number of companies to forecast flat or negative earnings.

But with every dark cloud there is a silver lining, in this case it is earnings and dividends. Companies are still paying lovely big fat dividends and their PE levels are lower than the average which points to the fact that the market is in fact over sold at present. So when everyone gets over the negativity in the market and funds start to flow back into the market place and out of cash holdings you can and will see the market rally back to 6600.
 
When you ask?  My pick is mid 2009.
 
In the meantime sit back and watch the fat fully franked dividend roll in.
 
Until next week.
 
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