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One of the most irritating aspects of stock markets is that no one of any market-watching credibility comes out at the end of every trading day and explains why the S&P/ASX 200 Index was up or down. Of course, the general answer after a crummy week like this one, with the Index down 0.15% (on Friday), is that there were simply more sellers than buyers. That’s a cute but sometimes inaccurate explanation.

You see, it depends on the quantity of sales per share rather than the number of actual sellers. Clearly, if lots of small caps attracted more buyers, then a few big sellers of the banks, Telstra and the big miners, could KO the index very easily because of their relative importance to the overall Index.

On Thursday, there were excuses about the market waiting for Chinese economic data that could cause problems for iron ore prices that allegedly affected the Index/market but the data came in better than expected, yet it didn’t help stocks on Friday.

Undoubtedly, that damn rising dollar is undermining many of the currency-sensitive stocks in the Index and I have to say that this dollar drive higher was not showing up in my economic crystal ball. I never believed the sub-70 US cents predictions but I didn’t think commodity prices would do so well.

Also, I expected US interest rate rises to have more sway on the dollar but, as we all know, the Oz dollar is about as predictable as Kim Jong-un or Donald Trump!

A part of the rising dollar has to be the better-than-expected run of economic data lately, which includes much better retail numbers and a trending up consumer confidence reading with the monthly index at a four-year high!

And because I think this trend will continue and bring better wage outcomes, I see the RBA’s forecast of growth better than 3% as very likely.

Also I reckon a significant number of companies will report better than expected and this screwy stock market of ours will turn a lot more positive over the course of 2018.

On iron ore, the commodity’s price was down 6% in four sessions this week. Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank says this could be the start of something we should watch. “We still anticipate iron ore prices to fall later this year on surplus concerns,” he said in a note this week. “Chinese iron ore supply, which is the most expensive in the world due to its low grade, will be key to this outcome.”

Chinese iron ore production rose 12% to 258 million tonnes last year and with steel prices on the slide, this could all add up to lower iron prices from recent elevated levels.

BHP is down about a dollar since January 15 but it was up nearly $5 since early December, so we really shouldn’t be too stressed about a bit of a pullback in iron ore prices.

On Friday, the S&P/ASX 200 Index gave up a wimpy 9 points to end at 6006 but it shed 64 points (or 1.1%) over the week! The US market gained around 0.4% before Friday’s close.

We saw four bad days in a row, despite our run of economic data nearly screaming that doomsday merchants on the Oz economy are wrong and surely profits might be higher than expected when February’s reporting season rolls around.

Of course, that damn dollar beating the 80 US cents level has hit those stocks that love a lower dollar.

Fairfax reports one economist getting on board with my view that rates will rise this year and maybe earlier than expected, which would help the dollar’s kick: “The recent run of solid domestic economic data, coupled with US dollar weakness, has contributed to the Aussie dollar cracking through US80c during the week,” CBA senior economist Gareth Aird said. “At the same time, Aussie rates have sold off [yields have climbed] as the odds of policy tightening from the RBA in 2018 and beyond rise.”

Banks are still being pilloried but as I’ve tipped, I reckon they will do a bit better than the market has suggested, as they have a way of defying gravity. I’d be a buyer on any silly dips for CBA, while the others are probably in buying territory, if you take a 12 months’ view with an improving Oz economy and rising stock market likely to help their share prices.

The CBA was $73 in early September and now hovers around $80, which is around a 10% gain plus dividends for anyone who ignored the bank-doubters out there.

To Wall Street, and while the Dow Jones Index was down 55 points with both American Express and IBM disappointing with their profit stories, the S&P 500 was up a few points a couple of hours before the close.

The big issues were those two mega-companies and their failures – AMEX had its first overall earnings loss in 25 years! – and the possible government shutdown. The House gave the budget bill the thumbs up and now it’s in the hands of the Senate.

And you can see why there’s nervousness, with Goldman Sachs calculating that there’s a 60% chance of a shutdown! America!

But even with this millstone around US investors’ necks, as I mentioned above, the S&P500 was up about 0.4% for the week, with earnings results pushing stock market indexes to record highs over the week.

Going into Friday, of those companies that have done their bottom line show-and-tells, 79% have exceeded expectations on earnings and 89% beat on sales forecasts. I hope some time this year our companies can come up with such impressive corporate profitability stories!

The US market is up 5% year-to-date, while our S&P/ASX 200 Index is down 0.8% but we were up 1.4% on January 9. And to be fair, we’re up 6.2% since October 5, so with softer commodity prices, a much stronger dollar and bank bashing continuing with silly talk about housing collapses, mortgage stress and so on, it’s no surprise we’re seeing a bit of profit-taking. That said, it is a buying opportunity for the investor believing the good economic outlook for Australia in 2018.

What I liked

• Total new lending commitments (housing, personal, commercial and lease finance) rose by 9.5% in November – the biggest rise in almost three years and to a 12-month high.
• Over the past year, a record 1,373,000 tourists came to Australia from China, up 12.7% over the year. Tourists from New Zealand totalled 1,360,300 visitors over the past year, but the number was up just 1.9%.
• Tourist arrivals rose 0.4% in November to be up 8% on the year. Tourist departures rose by 0.4% in the month to be up 6.3% on the year.
• The Westpac/Melbourne Institute survey of consumer sentiment rose by 1.8% in January – a 4-year high. The index now stands at 105.1 (long-term average 101.5). A reading above 100 denotes optimism.
• The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.2% to 123.5 last week – the highest level in four years and well above the long-run monthly average of 112.9. The reading on personal finances is the second highest in nine years of records.
• The Australian Bureau of Statistics (ABS) reported that new vehicle sales rose by 4.5% in seasonally-adjusted terms in December. Vehicle sales were at record highs in 2017.
• The number of loans (commitments) for home owners (owner-occupiers) rose by 2.1% in November after falling by 0.6% in October.
• The value of new housing commitments (owner occupier and investment) rose by 2.3% in November after rising by 0.3% in October.
• The proportion of first-time buyers in the home loan market rose from 17.6% to a 5-year high of 18% in November (decade-average 17.9%).
• The Beige Book summary of economic conditions from the US Federal Reserve indicates that the economy has continued to expand from late November to the end of 2017, with employment and wages both growing at a modest pace.
• US industrial production rose by 0.9% in December (forecast +0.4%).
• New claims for unemployment insurance in the US fell by 41,000 to 220,000 – the lowest since 1973.
• The Chinese economy grew at a 6.8% annual rate in the December quarter (forecast 6.7%). Over 2017, the economy grew by 6.9%. In the December quarter, retail sales were 9.4% higher than a year ago and production rose by 6.2%.

What I didn’t like

• Our dollar’s rise over 80 US cents but some part of it is the better-than-expected Oz economy, which I argue will eventually bring better profits.
• The Philadelphia Federal Reserve index fell from +27.9 to +22.2 in January (forecast +25.0). Housing starts fell by 8.2% to a 1.192 million annual rate in December (forecast 1.275 million).
• Investors in the US were wary of taking on new positions ahead of a possible government shutdown, as temporary funding expires – only in the USA!
• The US Government shutdown threat this week.

A good omen

Last Saturday, I met my favourite legend tennis player on my Virgin flight out of Sydney. She was responsible for one of the greatest quotes of all time that I use to motivate business audiences, my team and my family.

The player in question? Chris Evert. The place? Obviously, Melbourne, the sports capital of the world for the Australian Open.

Her observation on her success goes like this: “There were times when deep down I wanted to win so badly I could actually will it to happen. I think most of my career was based on desire!”

My encounter with Chris and what she inspired in me can be found here

I hope you get the desire to will our stock market higher to at least 7000 this year!

The Week in Review:

• The positives are more than outweighing the negatives, so we really could see a new high. I explained why I think the S&P/ASX 200 hitting 7000 is on the cards this year!
• Paul Rickard updated our Model Portfolios for 2018 and the major callouts are for a moderately overweight position in financial stocks and least index-weight in resource.
• European shares are at their lowest discount ever versus US shares and James Dunn explained why the European exposure makes sense and shared with us five ways to buy in.
• Tony Featherstone shared 3 new listings to watch. Find out what they are here!
• Charlie Aitken believes that the central bank power is over and there is money to be made, just in different ways to the last three years.
• In the first Buy, Hold, Sell of the year, there were four downgrades including Origin Energy and Santos.
• And in the second Buy, Hold, Sell, brokers were back in business and there was plenty of action including an upgrade for Westpac and a downgrade for Telstra.
• Plus, Graeme Colley of SuperConcepts answered a curly question about leverage in your SMSF.

Top Stocks – how they fared:

What moved the market?

• This week saw the Aussie Dollar hit 80 US cents early on Thursday morning and it continued to hold its high at 80 US cents for Friday’s close. The catalysts include a weaker US dollar, a stronger global economy, higher commodity prices and an improving Australian economy
• New figures showed that the employment rate has risen for a record 15 month straight, up by 34,700 in December after rising by 63,000 in November. Full time jobs rose by 15,000 while part time jobs rose by 19,500. The unemployment rate also increased from 5.4% to 5.5% as more Australians went looking for work.
• Bitcoin has seen better days with its price dropping dramatically this week after the South Korean Finance Minister said in a radio interview that a ban on trading cryptocurrencies was a live option.
• Days after Darrell Lea sold for $200 million, Nestlé is selling to Ferrero for close to $3 billion.

Calls of the week:

“I think that we’re set to reach 7000 this year!” – Peter Switzer

“Time to change the date” – Greens party members made a call to change the date of Australia Day

“Do you want me to marry you?” – Pope performs first marriage on board papal plane

The Week Ahead:

Australia:

• Monday Januray 22 – CBA Business Sales Index (December)
• Wednesday January 24 – Skilled internet job vacancies (December)
• Wednesday January 24 – Industry productivity (2016-2017)
• Thursday January 25 – Detailed labour data (December)

Overseas

• Wednesday January 24 – US FHFA home prices (November)
• Wednesday January 24 – US, Europe ‘flash’ purchasing managers
• Wednesday January 24 – US Existing home sales (December)
• Thursday January 25 – US New home sales (December)
• Thursday January 25 – US Advance goods trade (December)
• Thursday January 25 – US Wholesale sales (December)
• Thursday January 25 – US Leading indicators (December)
• Friday January 26 – US Economic growth (December quarter)
• Friday January 26 – US Durable goods orders (December)
• Friday January 26 – China Industrial profits (December)

Food for thought:

“It always seems impossible until it’s done” – Nelson Mandela

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 shows how this has changed compared to the week before.

Charts of the week:

It has been an exceptional year for the job market with employment rising for the 15^th straight month and the unemployment rate rose from near a five year low of 5.4% to 5.5 % as more people looking for work.

Source: CommSec

In wake of the vehicle sales data which was released on Tuesday, the graph below indicates the increase in sales and how new motor vehicle sales hit records highs.

Source: CommSec

Top 5 most clicked:

1. Paul Rickard – Our portfolios for 2018
2. Paul Rickard – Questions of the week – ETFs, Westfield Trust, Origin, Suncorp and Rio
3. Peter Switzer – Why I think the S&P/ASX 200 at 7000 this year is on the cards!
4. Sarah Shaw – Professional’s Pick – Transurban (TCL AU)
5. Switzer Super Reporter – Buy, Sell, Hold – what the brokers say

Recent Switzer Super Reports:

Monday 15th January, 2018 – A new high

Thursday 18^th January, 2018 – A new era

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.