Foolish Preview: The Dow hits new highs, good news for the ASX


The Dow Jones Industrial Average (Index: ^DJI  ) gave US investors reason to rejoice overnight, reaching levels not seen since before the depths of the financial crisis.

The Dow gained 66 points, or 0.5% and finished at 13,279.3, to mark its highest close since December 2007. Similarly, the S&P 500 and Nasdaq both posted gains – of 0.6% and 0.1%, respectively.

A surprisingly positive reading from the Institute of Supply Management’s Purchasing Manager’s Index helped reassure investors that the teetering rally might still have room to run. In a sign of renewed confidence, the market’s “fear gauge” or the VIX (Index: ^VIX) declined by 3.2%. Overall, today marked a surprisingly pleasant day for investors.

Of Australian companies also listed on the major US boards, BHP Billiton (ASX: BHP) closed up 1.6% and Rio Tinto (ASX: RIO) up 1.7%

The other news overnight was that a British parliamentary committee has found (though not unanimously) that Rupert Murdoch, Chairman and CEO of News Corporation (ASX: NWS) is not a ‘fit person’ to lead a global corporation and his son James showed ‘wilful ignorance’ of the phone hacking at the company’s News of the World newspaper.

The ASX SPI futures index closed up 0.5% to 4,439, likely pointing to another day of gains for the S&P / ASX 200 (Index: ^AXJO) (ASX: XJO) and the All Ordinaries (Index: ^AORD) (ASX: XAO).

Of course, our market is likely still feeling the warm inner glow of yesterday’s surprisingly large rate cut, which also can’t hurt (and I’m sure helped Premier Investments’ (ASX: PMV) Solomon Lew, Myer’s (ASX: MYR) Bernie Brookes and David Jones’ (ASX: DJS) Paul Zahra sleep well last night)! Not to be outdone, Metcash (ASX: MTS) CEO Andrew Reitzer has turned his attention to next week’s federal budget, calling on the government to focus on growth rather than a slavish delivery of a budget surplus.

Meanwhile, Stockland (ASX: SGP) managing director Matthew Quinn yesterday confirmed the company would meet full-year guidance, no doubt also thankful for a lower official cash rate, while Wotif (ASX: WTF) was yesterday the most recent addition to a long line of profit downgrades from consumer-facing businesses.

The Australian Dollar was surprisingly little-affected by the rate cut, dropping around one US cent from very recent highs, but only back to similar levels of 7 days ago. It was recently trading at around 103.33 US cents.

ANZ (ASX: ANZ) released its earnings this morning, showing National Australia Bank (ASX: NAB) a clean pair of heels, with ANZ’s 10% profit, but the bank’s underlying profit growth of 6% is much closer to NAB’s 5.7% growth announced on Monday. Interestingly (and perhaps worryingly for bank shareholders) ANZ’s margin fell during the half. That doesn’t bode well for mortgage holders hoping the banks will pass on the full interest rate cut, with banks likely to point to shrinking margins as justification for keeping some of that rate for themselves.

All eyes will be on ANZ, NAB, Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) to see what they do with rates – and who will move first.

Corporate activity continues to be a focus for our market, with DuluxGroup’s (ASX: DLX) takeover offer for the remainder of Alesco Corporation’s (ASX: ALS) shares (the company already owns 20% of the target), and a Financial Review article suggesting that the most recent announcement from JB Hi-Fi (ASX: JBH), in which the company reported lower profit, was likely to depress the value of Woolworths’ (ASX: WOW) Dick Smith business which is on the sale block.

With so much news, it’s sometimes hard to stay focussed on the big picture – but that’s exactly what we need to do if we want to be successful investors. Rates go up and down, so does consumer confidence. The businesses that survive these downturns most often come out the other side stronger than when they went in.

Invest for the long-term, Fools!

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Scott Phillips is an investment analyst with The Motley Fool. Scott owns shares in David Jones and Woolworths.You can follow him on Twitter@TMFGilla. Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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