A magic mark, but too early to have a party

Think of the 5000-point index mark that was topped on Wednesday for the first time since April 2010 the same way you think about birthdays. They are basically just another dot on a long line, but you break out the candles anyway, because they are sentimental milestones.

Just like birthdays, however, milestones like the one the sharemarket reached on Wednesday provide next to no guidance about what's going to happen. You might get hit by a bus with the birthday cake in your hand - and since the global financial crisis began the market has been at these levels and then been hit by a bus three times.

After free-falling from its November 2007 high of 6828.7 points the S&P/ASX 200 Index tried to stabilise around 5000 points between July and the end of September in 2008, a period that saw a concerted attempt by central banks and law-makers around the world to stem the bleeding, and, in September, the rescue of a raft of finance houses.

Those who bought then failed to appreciate that the financial shock was morphing into an economic one that would bring business activity to a standstill in the months on either side of Christmas that year, and usher in a northern hemisphere recession. The S&P/ASX 200 Index fell by another 37 per cent from the 5000 level to bottom at 3117 points in the first week of March 2009.

Like a porpoise it briefly broke the water above the 5000 mark in April 2010 on the back of buying by investors prepared to believe that the crisis was history, and that economies and company earnings were on the mend.

Greece was however by then being prepped for surgery by the European Union, IMF and European Central Bank, and Europe's sovereign debt crisis was spreading, and sentiment here was about to be put through the grinding mill as the Rudd government encountered fierce mining industry opposition to the first version of its mining super profits tax. By early July, Greece's first bailout had been announced, Ireland was struggling to avoid one [it came in November of that year], Julia Gillard was Prime Minister, a compromise mining tax had been agreed, elections were looming and the ASX 200 was back down to 4200 points.

The index approached 5000 points again in April of 2011, for much the same reasons: Greece, Ireland and Portugal had been bailed out. Greece was talking about a second rescue, but there were hopes that Europe's crisis had been contained.

By the middle of that year, however, the ability of both Spain and Italy to avoid being sucked into the sovereign debt sinkhole was being questioned, and yields on their government bonds were rising ominously.

The Obama administration was also in a fight with the Republican-controlled House of Representatives over an extension of America's debt ceiling, and on August 5, just four days after a messy compromise was thrashed out, Standard & Poor's took the unprecedented step of downgrading America's sovereign debt.

The S&P/ASX 200 Index hit a low of 3863.9 points in the final week of September 2011, and the bears were ascendant until the middle of last year, when European Central Bank president Mario Draghi announced that he was prepared to spend what it took to defeat anyone trying to mount a bond market selling attack on Spain or Italy.

Now we are back at the magic 5000 mark, on growing confidence that the global crisis is finally behind us. Sound familiar? It should, and while sentiment is much more positive than it was ahead of Draghi's declaration, there are still icebergs in the water.

Draghi's promise to defeat any bond selling raid was good enough to scare the raiders off and drive Spanish and Italian sovereign debt yields down, but a bail-out of Spain may still be needed. If on the other hand that is avoided and global growth consolidates, more than $US3 trillion of monetary stimulus, much of it freshly minted "quantitative easing" money will need to be delicately withdrawn to avoid an inflationary bubble.

Money creation in the US and now Japan is pulling down on those currencies and raising the risk of a currency devaluation war, and sovereign debt levels remain dangerously high in Europe, the UK, Japan and the US. The "to do" list in other words is still lengthy.

Earnings growth on a broad front is a missing ingredient in the rally but some of the profit results here and overseas support the theory that blue chip earnings are solid enough to warrant a shift from fixed interest paper to shares where superior yields are on offer, and as the 7.7 per cent rise in Westpac/Melbourne Institute Consumer Sentiment Index in February to highs last seen at the end of 2010 that was detailed on Wednesday implies, investors are more inclined to be believers than they were a year ago.

The 6 per cent higher $3.78 billion profit that Commonwealth Bank unveiled was only slightly better than predicted, for example, but CBA's shares jumped 2.4 per cent, taking their 2013 gain to almost 8 per cent after a 25 per cent gain in 2012.

CSL's 24 per cent higher $US627 million December-half profit was the pick of the day. It beat expectations comfortably, but after a 68 per cent gain last year and a 6 per cent rise this year the shares were held to a 0.5 per cent lift.

A jump in CSL's profit margin to 31.7 per cent from 27.3 per cent in the December 2011-2012 half and 27.7 per cent in the June 2012 half reflected a couple of one-off factors and margins will be a bit tighter in the second half. The group is predicting much the same percentage profit rise for the full year, however, and on its track record should achieve it.

■ Correction I had the wrong name on Wednesday on the $65 million cheque the Reserve Bank will get at the end of this month for the sale of its 50 per cent stake in the polymer banknote manufacturer Securency. Securency's other 50 per cent shareholder, Innovia, will buy the stake, not Innovia's owner, British private equity outfit Arle Capital.

mmaiden@fairfaxmedia.com.au