Huge rally fueled by positive US consumer sentiment for September 2006

September 27th, 2006

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This morning, we heard news of a strong rally in the US stock market overnight, triggered by much better than expected US consumer sentiment report for the month of September. Apparently, this improvement is due to the falling of oil prices, which will certainly translate to cheaper petrol at the bowsers. As of right now, the Aussie market, along with the rest of the Asian markets, is following suit- the All Ordinaries index is shooting up by almost 2 percent. Meanwhile, on the negative side, US home builder, Lennar, lowered its fourth-quarter outlook, due to the faster than anticipated pullback of the US housing market.

We look in amazement at the market?s rapid turnaround in mood. It wasn?t long ago that the market was fretting over worries of a recession in the US economy. It can?t seem to make up its mind in deciding whether to believe that the US economy is heading for recession or not.

As for us, cautious as we often are, we feel that today?s rally in the Aussie market may be short-lived. It looks to us that the market is over-reacting, given that in the context of so many bad news (including the ?good? news), this good news (the consumer sentiment report) is just only good for the month of September only. We prefer to base our tentative conclusions more on the trend (which is trending down for the US economy) than on individual isolated outcome (which is up for the consumer sentiment in September). Particularly vulnerable, are the stocks in which their businesses are related to the US housing market- US median home sales price fell for the first time in 11 years.

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