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S&P/ASX 200 closes the week above 6000 – where to next?

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has finished the week above 6,000 points for the first time since 2008, amid a backdrop of company tax reform in the United States and a broader outlook of global growth.

Following a weak lead from Wall Street overnight, the major Australian index fell to a close of 6,029.40 on Friday for an overall increase of more than 1% for the week.

After rising strongly earlier in the week, it was the big mining companies BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) that pulled the ASX 200 lower on Friday, both falling 2%.

It may have been a case of some profit taking, as both companies’ share prices have risen strongly during the last month, and have been a key reason why the index broke through the 6,000 barrier on Tuesday.

Another major factor has been Commonwealth Bank of Australia’s (ASX: CBA) share price rise of almost 7.5% since the start of October. Australia’s largest bank provided a first quarter trading update this week and it was well received by the market, pushing CBA’s share price back above $80.

It marks a strong comeback from the bank. Its share price almost fell below $70 in September, amid the fallout from AUSTRAC’s allegations of anti-money laundering breaches.

Australia’s other major banks all released full year results recently that perhaps slightly missed market expectations, leaving Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) relatively flat for the week, buoyed by CBA’s update on Wednesday.

National Australia Bank Ltd (ASX: NAB) was the exception, finishing the week down more than 4% after going ex-dividend on Thursday.

ANZ and Westpac will follow suit on Monday 13 November, meaning the ASX 200 will likely start the week lower and perhaps fall back below 6000. I wouldn’t be surprised to see further profit taking drag the market down this month, before entering December for what is historically a strong period for the index. Westpac, NAB and ANZ dividends all arrive in time for the annual “Santa Rally”, and I think we’ll be looking at above 6,100 in the new year.

Foolish takeaway

Momentum can be a strong driver of markets in the short term, however it is business fundamentals that will determine share price performance in the long term. Investors should be mindful of the “fear of missing out” when markets get on a run and instead stick to decisions based on sound research and fundamental analysis.

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Motley Fool contributor Ian Crane owns shares in Westpac Banking Corp, National Australia Bank Ltd and Australia and New Zealand Banking Group. The Motley Fool Australia owns shares in National Australia Bank. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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