June lived up to its reputation as the worst month for the All Ords declining for the 15th time in 24 years. The XAO fell -7.6% in the month of June. Taking out January this year when the XAO plunged more than -11%, June was the worst month since August 1998.
Despite the largest monthly decline in almost 10 years, there was a noteable lack of panic as the market declined in a very orderly manner. There seems to be some complacencyy among investors that we have seen the bottom in the stockmarket. I contnue to believe we have not seen the lows yet and that what we witnessed last month was simply the failure of a bear market rally in April and May.
So what about July? Over the last 23 years July has been a reasonably good month for the All Ords rising twice as many times as it has declined. However that in no way implies that this July will see a rise in the XAO. That said we are about due for a short, sharp clearing rally of the kind that you typically see in bear markets.
On the economic front Thursday's US non-farm payroll report will probably show that US employment declined for the sixth straight month. Given recent jobless claims numbers and the up-tick in the number of workers that think jobs are hard to get, we may see a triple digit decline. However, with the rebate checks being mailed out we can expect strong spending numbers for next couple of months.
On the earnings front, we will start to get some 2Q08 earnings reports and pre-announcements. Once again the financial sector will be ugly, however the key to this earnings season will be the outlook for the rest of 2008. My feeling is that things won't be as cheery as the cheerleaders would have us expect.
And that is why on balance I have to go against my better judgement for a bear market rally and call the XAO lower in the month of July. Also if you inclined to do so, please vote in the poll at the top of the left sidebar to have your say on the likely direction of the XAO in July. The poll will remain open until Friday.