Australian Investment Blog

It’s D-Day, let's sit back and observeGood morningOverviewYesterday saw a positive mood back in the markets after the previous day’s negative one. Once again the market should open with a positive frame of mind after a solid overnight rise on Wall Street. But what do the next few days bring?When we wake up tomorrow we will know if the Fed has raised rates; but ‘so what’ it’s hardly a surprise! Traders are currently only building in a 28% chance of a hike in the morning compared to 63% of a hike in December - Market Matters thinks tomorrow.Raising tomorrow will remove unwanted uncertainty from financial markets; clearly the preferred scenario.The impact of a rate rise is now important to consider. The S&P500 is already trading on 16.7x projected earnings so, remember, it's not cheap at present with the average P/E around 16x going back to 1960. Over the last 70 years profit growth has fallen by around 50% in the year after a rate rise implying a slow 2016.Turning to the MarketsEver since the savage correction of 5 weeks ago the market has, basically, been fixated on tomorrow’s news and the Chinese economy. As a comparison move we are looking VERY closely at the retracement in 2011 - see chart 1.Back in 2011 the S&P500 fell 296 points (see 1-2 on chart 1), we are following the path incredibly closely hence if we get an aggressive spike down in coming weeks towards the 1830 area (8% lower). At this level, Market Matters would be technically very bullish. Conversely, if the market rallies from here we are comfortable having accumulated enough quality stocks into the recent selling. A nice balance = "Trade / invest to sleep well".Two other moves that we have been discussing over recent times look to have commenced overnight.1. Gold surged almost $US18/oz last night