A little more than seven years have passed since the US spread its financial contagion to the rest of the world.
There is an adage that when the US catches a cold, Australia develops pneumonia. How true this proved!
Australia has yet to shake off the effects of the global financial crisis (GFC). Our recovery stalled at about the 61.8% Fibonacci level, as shown on the above weekly chart of the XAO (All Ordinaries).
My expectation was for the strong momentum of the past two years to continue in 2014. Instead the XAO started the year at 5323.8, but finished at 5415, up only 91.2 points for a 1.71% gain.
This was a disappointing result for Aussie investors, since the US S&P 500 index, which had already recovered and was making new highs, continued to forge higher, rewarding those with US shares in their portfolio.
10 year Weekly chart of the SPX (Incredible Charts) S&P500 US Index
It first exceeded the pre-GFC peak of about 1580 the week of April 12, 2013, and continued to make new highs. The uninterrupted rise through 2014 however has provoked fears of a new correction, triggered by the “bubble-like” prices of some stocks.
In contrast to the small rise of the Australian index. the S&P500 gained 11.7%, finishing the year on 2058.17, up 217.19 points from 1841.
Which market is likely to be the more profitable for investors in 2015?
I have plotted the Fibonacci extension levels on the chart of the SPX. At present momentum has carried SPX to a 50% increase above the previous pre-GFC high.
Continuing momentum might well reach a target of 2500 by the end of 2015. However the longer it continues to rise, the more likely a retracement becomes.
Historically, sooner or later major indices do recover, and go on to make new highs.
I would think the XAO might in fact out-perform the SPX in 2015.