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It felt like stocks had a bad week, with the S&P/ASX 200 index down just under 1% but the reasons were American and unconvincing. Talk was that the durable goods numbers have been weakening and they have been, but it’s been a cold winter and the US dollar is rising. The Yanks have had it their own way since 2009 with zero interest rates (which they still have) and a low greenback (which forced our currency up to around 110 US cents). Now the tide is turning. That’s why I argue we’re set for a better year on the stock market.

But could a Wall Street slide let us down, creating the negative lead-ins that hurt our attempts to break the 6000-level this week?

It’s possible, as our inclination to be a sycophantic stock market follower seems perpetual, but we can de-couple. It’s hard to ignore the New York Stock Exchange’s lead but we can fall less and rise more. In fact, after the dotcom bust, the US market underperformed. Prior to the GFC, we were one of the best-performing markets in the world!

A lot of negative types, with average economic training, are ‘pooh poohing’ the US story prematurely.

Philip Noftsinger, president of CBIZ Payroll, got it right when he argued that the United States is “really just now entering the first innings of small business hiring. There’s a lot of optimism among small business owners. Wage growth will follow along with hiring trends (as there are) limited candidates to fill those positions.” (CNBC)

This parries up with my view that the Russell 2000 is the smart index to play because it has the companies that will tap into more confident US consumers, who spend money on American stuff and holiday at home. The big companies of the US, such as Google, IBM, Apple, etc., earn a lot of export income overseas and these lose profits as the greenback rises but they’ve had it great while the dollar was low.

Of course, US locals do buy iPhones and the more positive US consumers become, the more they’ll help offset the rise in the dollar.

And the Chinese currency is going higher too, which will help sales for companies such as Apple.

By the way, last week when I interviewed US economist, Dr. Arthur Laffer, he said rising interest rates in the States means banks will lend to people who’ve been missing out on getting refinance loans since 2008. He expects rising interest rates to lead to lots more economic growth, not less! Wall Street dips and corrections will remain buying opportunities for a number of years. I used to say two years but it could be longer!

My interview with Gary Stone of Share Wealth Systems last Monday made me rethink how long this bull market has to run. His views are compatible with ex-Mac Bank equities research strategist, Tanya Branwhite, who has been headhunted for the Future Fund.

Tanya always argued that this would be a long, drawn out economic and stock market cycle.

What I liked

• The US services sector expanded in March, at its fastest pace since September. This employs about 80% of US workers and has to be a big plus for American consumers, who will make up for falling exports as the greenback goes higher.
• US jobless claims fell to a five-week low, which says there’s a healthy and expanding labour market. This trumps those who want to talk down the economic recovery there.
• Household wealth here is at record highs and if the Government can get consumer and business confidence up, we could start spending and creating jobs.
• This from the RBA: “The Australian banking system has performed strongly since the previous Review. Banks’ profitability remains robust, supported by a further steady improvement in asset performance.” (How will bank critics find a reason to try and scare us with this?)
• This too from the RBA: “Indicators of household stress are currently at low levels, but could start to increase if labour market conditions weaken further than currently envisaged current interest rates.” This is a HUGE case for another rate cut to ensure unemployment doesn’t rise to undermine households!
• The S&P 500 held above its 100-day moving average of about 2040, which is a good market sign.
• US consumption was revised from 4.2% to 4.4%. More importantly, this was the strongest rise since the 1st quarter of 2006, before we’d even heard of a GFC!
• US consumer sentiment in March went from a big 93, which was above estimates but under February’s 95.4 but it’s still a good reading.
• The US fear index or VIX is at a low 15, which indicates investors still believe in stocks despite four days of losses on Wall Street this week. Ahead of the close, markets were just up.
• In the week ahead, we get a lot of local economic data on the important housing sector, which is crucial for our recovery hopes. The Yanks get housing data as well but I want to see their jobs report, which can be a huge market-mover. The job creation number tipped for March is 249,000.
• I liked Joe and Tony not U-turning on their hints that the next Budget will be pro-growth and jobs, despite Glenn Stevens and David Murray calling for them to stick to their budget repair program. I interviewed a number of CEOs this week and they all want consumer confidence to rise, while not one said they wanted a lower deficit instead of a more positive consumer or business customer. Funny that.

What I didn’t like

• The Dow Transports index made a series of five tops on the chart and failed to make a new high in March, which can be a worry, as it’s an important market indicator.
• The analysts tipping the US to have negative earnings in the looming earnings season but a 13% rise in the greenback in around six months will do that! On the flipside, it explains why we might be more optimistic about our stock market this year.
• US 4th quarter GDP remained unrevised at 2.2% after a third estimate, while most economists were tipping 2.4%.
• Fed boss Janet Yellen speaking 15 minutes before the closing bell at the NYSE but this is after I file this report! Market players will look for rate rise timing hints, so as the Dow was up 10 points with about hour to trade, any big move in those last 15 minutes will be a Yellen yelling out a tip on timing of the first rate rise.

This made me laugh

An email I received this week from Dr Laffer that said: “Dear Peter, I was lucky enough to visit the Taronga Zoo as soon as I arrived in Sydney. After I (narrowly) escaped being put on display myself, I thought that would be the highlight of my trip, but after meeting such a variety of smart and savvy Australians I realized that it was just a starting off point. I loved my trip, and I can’t wait to see Australia’s potential for increased prosperity fulfilled.”

Gotta love positive Yanks, especially when they have an economic theory that says if you cut taxes, governments actually pocket more tax. How? It comes from more economic growth and less tax evasion. History shows lower tax rates can do this. Because there are more jobs, there’s less need for governments to spend.

Who said economics is a dismal science?

Top stocks – how they fared

The week in review (click the blue text to read more):

• This week, I gave you 7 important things all investors need to know!
• And keeping the theme consistent, James Dunn gave us 7 stocks under 70 cents, including Yowie Group and Pacific Energy Limited.
• The brokers upgraded BHP Billiton and iiNet, while Kathmandu copped a downgrade. In our second broker report for the week, Perseus Mining and Regis Resources got the tick of approval.
• Paul Rickard gave you two points to consider before chasing yield from the new hybrid securities issue from Crown Resorts.
• Charlie Aitken said we’ll see increasing capital gains in the right equities, and explained why he’s also bullish on Transurban.
• You can get high quality, cheap stocks from the likes of ANZ and Ansell, explained Roger Montgomery.
• And Geoff Wilson discussed announcements made by Ardent Leisure and Sirtex Medical, which saw share prices drop, as a potential buying opportunity.

What moved the market (click the blue text to read more):

• Concerns from analysts that biotech and technology shares are overvalued hit Wall Street this week, with the NASDAQ suffering the most after its loss of 118.21 points on Wednesday.
• Wall Street also got spooked by the heightening Yemen crisis.
• And cautious investors led the local market lower on Thursday, with the banks and mining sectors among the weakest performers. We were frustratingly close to the 6,000 mark during Monday – 5 measly points away!

The week ahead:

Australia:

• Tuesday March 31 – Weekly consumer confidence
• Tuesday March 31 – Private sector credit (February)
• Tuesday March 31 – New home sales (February)
• Wednesday April 1 – Building Approvals (February)
• Wednesday April 1 – Monthly home prices (March)
• Wednesday April 1 – Performance of Manufacturing (March)
• Thursday April 2 – International trade (February)
• Thursday April 2 – Job vacancies (February)
• Thursday April 2 – TD Securities inflation gauge (March)

Overseas:

• Monday March 30 – US Personal income (February)
• Monday March 30 – US Pending home sales (February)
• Tuesday March 31 – US Case Shiller home prices (January)
• Tuesday March 31 – US ADP national employment (March)
• Wednesday April 1 – US ISM Manufacturing (March)
• Thursday April 2 – US Trade Balance (February)
• Friday April 3 – US Non-farm payrolls (March)

There’s still plenty of data on the table in the lead up to Easter, with several important economic markers in the pipeline. On Tuesday, the Reserve Bank will release private sector credit – or lending – for the month of February, while the performance of manufacturing for March is out Wednesday. Another forward looking indicator – February job vacancy figures – will be released by the ABS on Thursday. The main focus at the end of the week will be the March inflation gauge from TD Securities, as the result may give the Reserve Bank a clearer outlook on rates.

Overseas, the key piece of economic data is arguably US non-farm payrolls – or employment data – because this will influence the Fed on the timing of any rate hike. Wall Street will however be closed when this is released on Good Friday.

Calls of the week (click the blue text to read more):

• Will Top Gear ever be the same again? The BBC made the tough call to give the boot to the show’s presenter, Jeremy Clarkson, following a physical attack on one of the producers – and apparently it was all because no hot food had been provided after a day of filming!
• Fortescue’s Andrew “Twiggy” Forrest raised some eyebrows this week after his cartel like call for the mining giants, Rio Tinto and BHP Billiton, to join his company in capping production of iron ore in the hope to lift prices. Forrest’s comments have raised alarm bells with the ACCC, who are investigating any breach of the competition laws.
• And should we abolish compulsory super? In his thought provoking article this week, my colleague Paul Rickard made the call that there might be a case to vote yes! Check his article out here.

Food for thought

Success is not final, failure is not fatal: it is the courage to continue that counts.

– British politician, Winston Churchill

Last week’s TV roundup

• Our charts guy, Gary Stone of Share Wealth Systems, shares his thoughts on the markets and why 6,000 is proving a difficult level to break through.
• Will Mike Baird receive the same treatment as Campbell Newman when the votes come in from the NSW state election? Political analyst, Malcolm Mackerras, shares his call on the outcome.
• My colleague and star writer of the Switzer Super Report, Paul Rickard, gives his view on BHP’s South 32 plan. Is it a gift that will keep on giving, or a dud? Find out here.
• And what’s up with the price of iron ore? Paul Rickard and I discuss oil and commodity prices in our latest Super Sessions video and answer the question – have we hit a bottom?

Stocks shorted

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table also shows how this has changed, compared to the week before.

This week the biggest mover was Monadelphous Group, who had its short position increase by a whopping 5.43% to 15.71%.

Source: ASIC

My favourite charts:

We’re getting richer!

Aussies have reached record wealth levels, with household wealth at $7,884 billion at the end of December 2014 – that’s up $189.7 billion over the quarter! As the chart shows above, in per capita terms our wealth levels sat at a record $333,061 in the December quarter.

Transurban tolls higher

Charlie Aitken thinks TCL has all the elements needed to outperform in the medium term. The chart below shows TCL has just broken out of a 10-year trading range. He’s set the 12 month price target at $10, and says it’s a high conviction buy.

Top 5 most clicked on stories

Peter Switzer: 7 important things all investors should know
James Dunn: 7 stocks under 70 cents
Charlie Aitken: The dash from cash
Roger Montgomery: High quality, cheap stocks – ANZ, Ansell
Tony Featherstone: 3 yield opportunities in small and mid-cap land

Recent Switzer Super Reports

Monday, 23 March: Back to normal
Thursday, 26 March: In good company