- Tech & Gadgets
- BRW. lounge
Published 12 March 2013 07:32, Updated 13 March 2013 07:50
The Dow Jones Industrial Average has been crashing through new highs to levels surpassing the peaks of the pre-GFC days of 2007. Photo: Getty Images
Each day the Dow Jones Industrial Average hits another record high – this morning it posted a new high-water mark of 14,447.29 – is another reminder of the disconnect between Wall Street and Main Street in the US.
Yes, American companies are enjoying a resurgence, fuelled by cheap credit and to a lesser extent cheap labour. And yes, earnings are improving, as is the jobs market.
But does it really make sense for Wall Street to be at record levels when the US economy remains on Fed support?
Australia’s market has of course enjoyed a great little run too in recent months and while we’re still a bit off hitting record levels, there’s clearly a sense of optimism about the improving prospects for earnings.
In the profit reporting season just gone, there were solid enough results and improving outlooks in a number of key sectors, including retail and to a lesser extent resources.
But yesterday – on a public holiday in several parts of the country no less – we saw two of our biggest companies send out a little reminder that the earnings outlook isn’t necessarily being driven by top line growth.
CSR announced it would cut 150 jobs in Sydney, part of a major restructure of its struggling glass division, Viridian. The company also said it was being buffeted by the strong Australian dollar and weak construction market.
A few hours later, NAB announced it would cut 130 jobs after killing off the advice arms of its Clydesdale and Yorkshire banks in England and Scotland. The bank has been trying to reduce its exposure to the UK market for some time, but CEO Cameron Clyne says he won’t sell at “fire sale” prices. He has previously announced 1400 jobs would go at Clydesdale and Yorkshire as part of a wider restructure.
These cuts – and the $10 billion of others announced during the profit reporting season are a reminder of three major headwinds for Australian businesses: the patchy state of the local economy, trouble in the global economy and the high Australian dollar.
Investors need to be careful that they’re buying real growth stories and not just ones propelled by cost cuts. And smart businesses need to carefully pick the green shoots they want to ride to growth.