Monday, 31 March 2008

XAO Declines For 5th Straight Month In March

Against the odds I speculated last month that the XAO would decline in March and low and behold it did. The XAO shed 4.7% in the month of March making it the fifth straight decline in the XAO starting in November 2007. That hasn't happened since the XAO fell for 5 straight months from June to October 1992.

So what will the month of April bring? I have data for the XAO going back 24 years and in that time the XAO has never fallen for 6 consecutive months. I get the distinct feeling that the market wants to have a rally. Especially since the US Federal Reserve is now fully engaged in corporate welfare.

However, I can't help thinking the market is in for a rude shock when 1Q08 earnings season gets underway in the US. Estimates are for about a -6% decline in operating earnings. That was very similar to the forecast going into 4Q07 earnings season and those earnings ended up showing a -32% decline. US banks are in for more pain as writedowns continue and their core businesses come under pressure. Also, expect to hear more tempered protfit outlooks for the rest of 2008 and warnings of a slowing US economy.

On the domestic front, it seems an almost forgone conclusion that the RBA will sit tight on interest rates this week. Economic data will continue to be strong Australia but there are signs that Australia could be headed for marked slowdown over the coming year. A story out today claims that small businesses see a recession coming

Small businesses 'expect recession'

Most small business owners believe the economy will be in recession within three years and, unfortunately, history suggests they may be right.

Click on the link for the full story. By itself that story doesn't mean much but there are increasing signs that business owners are becoming more cautious. Figures from the RBA today showed a slowdown in private sector credit growth in February.

It would seem a tough bet to think that the XAO could pull off something it hasn't in the last 24 years - a sequence of 6 straight monthly declines. However, I've had a lot of success taking the other side of those odds recently so I'll stick my head out and say April will be another down month for the XAO.

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