Market Wrap 8-3-13

 By Jason Fittler

Last week we saw our market get to the highest levels since the GFC. The US continues to rally and Australia is following suit.

The big question is does it have the strength to go on with the move? The technical experts say no, yet the market continues to rally.

Historically one of the main drivers of a company’s share price is expected future earnings. Investors value a company based on what they expect it will make in profits in the future. This forward view is why company share prices are generally higher or lower then what last year’s profits would indicate.

Back in 2008 in the middle of the GFC, we saw the share price of healthy companies which produced good results in the 2008 financial year continue to fall. This was due to investor expectations that the company moving forward would produce less profit as the GFC followed its course. Investors became more negative on the market.

The reporting season saw good results. But, are the future forecasts of these companies high enough to support the current market price?

Are investors now too positive on the markets?