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You don’t have to be me to work out that the Trump tariff tantrum ruined what could have been an OK week for the local stock market.

I know this because my fund SWTZ saw $2.59 earlier in the week and then finished at $2.54!

The President’s bad decision to fire the first US shots in a trade war is a new curve ball for stocks. It makes me think that if ever I’ve said anything nice about Donald Trump, I’d like to tone down those endorsements.

To be honest, he has been good for US stocks but what about our market? Well, we were around 5300 when he was elected in early November 2016 and we’ve been as high as 6135 over 2017, and the positivity on Wall Street has been a help.

On the other hand, so has the strength of the US economy, which is not all Trump-created and his policies have helped keep the US dollar low and our dollar high, which hasn’t assisted our economic growth rates, profits and stock prices.

To be fair, it has been swings and roundabouts but this trade war and its uncertainty has creamed stocks this week, with Wall Street looking set for four days down.

If it turns positive overnight, it would be a great effort.

For those who keep score, the market ended down 1.2% for the week, with Mr. Trump’s tariffs on steel and aluminium whipping 0.7% off our index on Friday alone. I reckon there was enough positivity around for local stocks to keep us tracking higher but Donald had to start tough tariff talk and it all went to you know what!

And it could get worse if talk is right that the President’s economic advisor, Gary Cohn, could be cashing in his chips to exit Washington because he couldn’t talk the President out of his tariffs on steel and aluminium.

Cohn was important to getting Trump’s tax package up and he gives Donald much-needed policy credibility. And this wasn’t helped by his comments overnight that “Trade wars are good and easy to win!”

All I can wish for is that the Fed doesn’t get silly on rate rises because that will be the trigger for more sell offs. Rate rises are bound to happen and so trade war retaliation from America’s trading partners is bound to be newsworthy in coming months and could be negative for stocks, just as Grexit was.

Stock markets aren’t good with negative uncertainty and the European Commission has said it would respond “firmly” to the proposed Trump tariffs. There’s talk of the miffed Europeans applying a 25% tariff on around $3.5 billion of imports from the United States!

Donald could lose his trousers over this but I’m not sure he’d care. Let me remind you that he did actually say: “Trade wars are good and easy to win!”

Back home, and AMP Capital’s Shane Oliver has summed up reporting season. “Solid broad-based profit growth with a good outlook will help the Australian share market, but it’s still lagging global profit growth,” he pointed out. “The December half profit reporting season is now done and has been pretty good.”

This is how he summed it up:

• 46% of results have exceeded expectations, against a norm of 44%.
• 74% of companies have seen profits rise from a year ago, compared to a norm of 65%, which is the strongest since the GFC.
• 66% have increased dividends from a year ago, with 26% keeping them flat, which is a sign of ongoing confidence in the outlook.
• 59% of companies saw their share price outperform the market the day results were released, against a norm of 54%.
• Consensus profit growth expectations for this financial year remain around 7%, with resources upgraded slightly to 16% and the rest of the market downgraded to 5% (from 6%), owing to a downgrade to banks.
• Profit growth expectations for 2018-19 have been upgraded to 5% from 4%, thanks to resources.

“This is good news and will underpin a rising trend in the Australian share market,” Shane tells us. “That said, local profit growth continues to lag that globally, where it’s running around 14%.”

That’s where a nice dollar depreciation would help.

Local factors are on the improve but we don’t need craziness to come out of the US because, as we’ve seen recently, we still play ‘follow the leader’ with Wall Street, and Donald is the Pied Piper over there.

What I liked

• New business investment (spending on buildings and equipment) fell by 0.2% in the December quarter after an upwardly revised 1.9% lift (previously +1%) in the September quarter. The annual growth rate at 4% is the highest in five years.
• The first estimate of investment in 2018/19 is $84 billion and is 3.5% higher than the first estimate for 2017/18. The upgrade in investment between the fourth and fifth estimates for 2017/18 is 4.9% – the biggest upgrade in 8 years.
• The weekly ANZ/Roy Morgan consumer confidence rating rose by 2.3% last week – the best gain in seven weeks. The index at 117.9 is well above its long-term average of 112.9.
• The CoreLogic Home Value Index of capital city home prices fell by 0.3% in February to stand 2% higher over the year. The national home price index fell by 0.1% in February to be up 2.2% over the year. It was the smallest annual growth in national prices in 18 months but that’s what policymakers want.
• The CBA/Markit Manufacturing index rose from 55.4 to 55.6 in February. The Australian Industry Group manufacturing index eased from 58.7 to 57.5 in February, however, readings above 50.0 indicate that the manufacturing sector is expanding.
• About 76% of the S&P 500 companies in the US that have reported so far have topped profit estimates, according to Thomson Reuters. That is above the average 72% recorded in the past four quarters.
• The US economy grew at a 2.5% annual pace in the December quarter, down from the preliminary estimate of 2.6% but still a good result.
• The ISM manufacturing index rose from 59.1 to a 20-year high of 60.8 in February (forecast 58.7). Construction spending was flat in January (forecast +0.3%). Personal income rose by 0.4% in January (forecast +0.3%), while spending rose 0.2% in the month as expected.
• Federal Reserve chief Jerome Powell delivered testimony to the Senate Banking Committee and reassured them that the economy wasn’t overheating.
• Eurozone economic confidence fell in February but remains very high, consistent with strong growth, bank lending to the private sector is continuing to accelerate and unemployment fell further to 8.6%.
• Japanese industrial production fell surprisingly sharply in January, but the still robust Japanese manufacturing PMI indicates that it will bounce back. Meanwhile, the labour market remains very strong, with unemployment falling to the lowest since 1993.
• UBS has taken Bega Cheese from neutral to a buy and that seems logical, given its acquisition of Vegemite! Cheese and vegemite – is this a winning combo in the land of Oz?

What I didn’t like

• Private sector credit (effectively outstanding loans) rose by 0.3% in January, after a 0.3% rise in December. Annual credit growth held at a 3½-year low of 4.9%. (Officialdom wanted to slow down housing but we have to be careful it doesn’t go too far.)
• President Trump said a 25% tariff will be imposed on foreign steel and a 10% tariff on aluminium.
• The US dollar fell on Trump’s tariff talk, which doesn’t help our currency.
• The Retail Food Group story – what a disgrace and some executives should legally be punished.

Away from Donald

I’ve highlighted in the likes and dislikes the exceptionally positive stuff going on right now, as it’s easy to get overwhelmed by the negative noise out there.

Imagine hoping for wage rises and inflation!

Well, in this post-GFC economy, that’s what’s happening. HSBC’s economists are confident that with evidence of labour supply shortages, wage inflation is not far away. That’s why HSBC’s Paul Bloxham is sticking to his view for a rate rise in the third quarter of 2018.

If Paul is right, then it should be a good omen for the economy and our stock market because the need for a rate rise will mean a better-than-expected performance.

The week in review:

• You know what I think you should do, but what are some great companies that the experts like? Read on to find out about the guru selection! That is 9 stocks to hold for 10 years.
• Should you take up your Woodside rights? The company has great potential but what’s it going to do with all this money? Paul Rickard explained.
• Is Ramsay Health Care still unconvincing? Charlie Aitken explored, especially after the share price took a tumble after their results.
• Mining services companies stood out in the recent reporting season and Tony Featherstone looked at 3 mining services stars.
• James Dunn looked at 3 small-cap surprises from earnings season – good things come in small packages, particularly this reporting period!
• In the first Buy, Hold, Sell – what the brokers say, there were 45 upgrades including Medibank and Newcrest mining.
• And in the second, Buy, Hold, Sell – what the brokers say, Mirvac got a double upgrade after its results while analysts were mixed about Ramsay Health Care.
• In this weeks Hot Stocks, two unloved, well-known companies were included. Find out what they are!
• Also Dollar General is featured in this weeks Professional’s Pick. Find out why.
• Plus, Paul Rickard answers all of your Questions of the Week including queries about G8 Education and valuing real estate investment trusts (REITs)

Top Stocks – How they fared

What moved the market?

• US President Donald Trump is said to impose a 25% tariff on steel and 10% on aluminium imports. If so the global relationships the US has could be tarnished.
• Reporting season wrapped up. Overall, company results were better than expected, although Harvey Norman and Ramsay Health Care disappointed this week.

Calls of the week:

• Myself and some other market types stuck out necks out and nominated our best stocks for the next decade! 9 stocks to hold for 10 years.
• We should all start celebrating because the stock market has almost recovered! – Peter Switzer
• Pregnancy rates can predict recessions according to an article in the Sydney Morning Herald.
• And the “non-call” of the week – Jobs and Innovation Minister Michaelia Cash‘s call not to unreservedly apologise immediately after her “brain fade”.

 The Week Ahead:

Australia

• Monday March 5 – Services sector surveys (February)
• Monday March 5 – Business indicators (December quarter)
• Monday March 5 – Building approvals (January)
• Monday March 5 – New vehicle sales (February)
• Monday March 5 – ANZ job advertisements index (February)
• Tuesday March 6 – Reserve Bank Board meeting
• Tuesday March 6 – Balance of Payments (December quarter)
• Tuesday March 6 – Retail trade (January)
• Wednesday March 7 – Economic growth (December quarter)
• Wednesday March 7 – Speech by Reserve Bank Governor
• Thursday March 8 – International trade (January)

Overseas

• Sunday March 4 – Italian general election
• Monday March 5 – China Caixin Services purchasing managers (Feb)
• Monday March 5 – US ISM Services survey (February)
• Tuesday March 6 – US Factory orders (January)
• Wednesday March 7 – US ADP employment change (February)
• Wednesday March 7 – US Trade balance (January)
• Wednesday March 7 – US Consumer credit (January)
• Wednesday March 7 – US Federal Reserve Beige Book
• Thursday March 8 – China Trade balance (February)
• Friday March 9 – US Employment report (February)
• Friday March 9 –China Consumer Price Index (February)

Food for thought:

“Think like a queen. A queen is not afraid to fail. Failure is another steppingstone to greatness.” – Oprah

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.

 Chart of the week:

According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 6.7 cents to 142.1 cents a litre in the past week – the largest increase in ten weeks.

Source: Commsec

Top 5 most clicked:

1. 9 stocks to hold for 10 years – the guru selection! – Peter Switzer
2. 3 small-cap surprises from earnings season – James Dunn
3. Should you take up your Woodside rights? – Paul Rickard
4. Buy, Hold, Sell – what the broker says – Rudi Filapek-Vandyck
5. Ramsay Health Care – still unconvincing – Charlie Aitken

 Recent Switzer Reports:

 Thursday 1^st March: Quite contrary

Monday 26^th February: Stock pickers’ paradise

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.