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The big news overnight was a strong move up for US stocks that has to be good for our stock market next week, with the Nasdaq hitting a record high after 313,000 jobs showed up in February but wages rises were subdued.

However, this was good news for stocks.

Recall that the last correction followed great job news that also came with solid wage rise numbers that got inflation and rapid rate increase fears on the rise. The bond market overreacted, then stocks did as well, aided and abetted by some screwy VIX products linked to exotic investment products.

“This jobs report was the perfect slice of pizza,” Kevin Mahn, president and chief investment officer at Hennion & Walsh, told CNBC. “It did reaffirm the underlying strength of this economy, but it also diminished some of those inflationary concerns and the potential that there could be more than three rate hikes this year.”

This week turned out OK, considering the threats that were out there. The jobs report said “yes” to US economic strength and “no” to strong wages growth that would power inflation higher. Global growth was a good news story again. US earnings remain a great story. Kim Jong-un wants to talk to Donald about being a nuclear nice guy and even the tariff tantrums turned less nasty, at least for us, for now.

Despite the Trump tariff tantrums, our S&P/ASX 200 index ended up 0.6% but it needed the prospect that our devotion to Uncle Sam, militarily and economically, could give us a tariff exemption from Donald T. We’d join his NAFTA partners (Mexico and Canada), which is a nice pay-off on one level.

In fact, these two US trade ‘friends’ are on a watch list and if they don’t make life easier for US steel businesses, they might end up with a tariff or two. That could leave us in the exemption class on our own!

Military buddy-love aside, it’s worth noting that just this week we learnt that our rolling annual trade deficit with the US rose to $18.5 billion in January from $18.1 billion in December. This is the largest annual deficit in over five years and the second largest ever recorded! Hitting us could be one slap too many for us nice guy Aussies.

That sounds like good news and so is the admission from the CFO of BHP, Peter Bevan, (who I interviewed yesterday for our new segment Coffee with Switzer, which you can watch on Monday on Switzer Daily). He says the Trump tax cuts more than offset any imposts from possible tariffs, however he confessed that he is worried about the potential negative effects of retaliation from the likes of Europe and other economic rivals/allies!

The reality is that 75% of the USA’s trading partners were slapped. China might have been the real target but the Yanks import 13% of their steel from Brazil, 10% from South Korea, 5% from Japan, 4% from Germany and 3.5% from Taiwan and these allies might be thinking “how do we get even?”

If we weren’t already lined up for volatility this year, the Trumpster and his tariffs, which could create a trade war really, has stock market influencers uncertain about how they should play equities right now.

In case you missed it, the S&P/ASX 200 index closed at 5963.2 on Friday, a rise of 20 points (or 0.3%).

News of interest was the fact that Ausdrill, Bellamy’s Australia, Smartgroup and Xero have made it into the ASX 200 at the expense of Australian Agricultural Company, HT&E and Myer, which fell 4.4% to 43.5 cents, according to Fairfax.

The big local story was that the record economic expansion for Australia is now in its 27th year. Our economy grew by 0.4% in the December quarter, after growing 0.7% in the September quarter. However, annual economic growth eased from 2.9% to 2.4%. The economy grew by 2.3% over the 2017 calendar year, down from 2.6% in 2016.

I’m hoping Craig James’ take on the data is spot on. “But economic growth is likely to lift over 2018,” he wrote. “We share the Reserve Bank’s view that growth will be stronger this year than last year. The economy is tipped to grow by 2.9% in 2018 after 2.3% growth in 2017.”

AMP’s Shane Oliver is a little less optimistic but still is close to Craig with his economic prognostications.

“There is good reason to expect growth to continue and pick up a bit – the drag from falling mining investment is nearly over, non-mining investment is turning up, public investment is strong, trade should add to growth and profits are rising.

But growth is likely to be constrained to just below 3% this year and underlying inflation is likely to remain low.”

This is why I think stocks are still the place to be for this year, despite the expected volatility with Donald in the driving seat for the world economy!

And what the RBA boss Phil Lowe said about interest rates makes me think stocks remain attractive, especially here.

Here’s James again: “The Reserve Bank Governor again said this morning [Wednesday] that the next move in interest rates was likely to be up. But there is no reason to either cut or lift interest rates at present. A further period of interest rate stability lies ahead, and the record low interest rates will be highly supportive of continued firm and sustainable economic growth.”

And I would add that company profits as well should be helped by this growth scenario for 2018.

What I liked

• Company operating profits rose by 2.2% in the December quarter to stand 4.3% up on the year. In 2017, profits hit a record high of $322.3 billion, up 19.8% over the year.
• The surge in consumer spending in the economic growth number. The biggest contribution to growth came from household consumption (+0.6 percentage points or pp) ahead of government consumption (+0.3 pp), public investment (+0.2 pp) and private equipment (+0.1 pp).
• The ratio of net income on foreign debt to exports of goods and services (i.e. debt servicing) stood at 6.2% in the December quarter, near the best levels in 36 years!
• No change to interest rates on Tuesday. I’m hoping on a rise later this year but we have to get some strong growth numbers for the March and June quarters first.
• The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.9% to 119. Confidence is up by 5.2% over the year and well above the average of 113.5 since 2014 and the average of 112.9 since 1990.
• Dwelling approvals rose by 17.1% in January after declining by a downwardly revised 20.6% in December (previously -20%). It was the strongest monthly increase in over four years. The annual value of commercial building approvals stands at record highs of $47.4 billion.
• According to the Federal Chamber of Automotive Industries (FCAI), new vehicle sales hit a record high of 1,199,731 units in the year to February, up by 2.4% on a year ago.
• The CBA Purchasing Manager’s Index (PMI) for the services sector rose to 54.2 in February from 53.8 in January. New orders accelerated to a 7-month high of 55.9 in February, up from 53.2 in January. A reading over 50 signifies services sector expansion.
• The Australian Industry Group (AiG) Australian Performance of Services Index (PSI) eased by 0.9 points to 54.0 in February – the twelfth consecutive month of expansion and the longest continuous expansion in almost 10 years.
• The ADP survey in the US showed that 235,000 jobs were created in February (forecast +200,000).
• China’s consumer price index rose 2.9% in February on an annual basis, beating the market’s forecast for 2.5% growth, and rising from 1.5% in January for the strongest annual growth rate in over four years, according to CommSec.
• Japan’s central bank kept monetary settings unchanged on Friday and stuck to its upbeat view on the economy.
• The European Central Bank (ECB) kept interest rates and its bond-buying program unchanged at its policy meeting on Thursday. However, the ECB dropped its long-standing pledge to increase its bond-buying program if needed. The Eurozone  annual GDP growth forecast for 2018 was increased to 2.4% from 2.3%. ECB President Mario Draghi, however, said that measures of underlying inflation remained subdued.

What I didn’t like

• That economic growth number of 0.4% for the quarter, which was affected by a slip in exports, which I think will be a one-off problem. That said, 2017 brought 2.3% growth, which I hope is beaten well and truly in 2018.
• Retail trade rose by 0.1% in January, after declining by 0.5% in December. Annual sales growth decelerated to 2.1% from 2.5%.
• Job ads fell by 0.3% in February – the second fall in three months. Job ads are still up 13.3% on a year ago.
• The whole Trump tariff tantrum, which hurt our market and the unit price of my SWTZ fund!
• US factory orders fell by 1.4% in February (forecast +1.3%), after a 1.8% gain in January but cold weather can hurt these numbers.
• The ISM non-manufacturing (services) PMI in the US fell by 0.4 points to 59.5 in February (forecast: 59).
• The Italian election result! This is how Aljazeera’s Silvia Mazzini summed it up: “The results of the Italian general elections seem to have marked the absolute victory of nationalist, anti-Europeanist and anti-establishment parties. Together, they won over 50 percent of the vote.” It tells the EU lovers that like a lot of other European countries, a large chunk of the Eurozone doesn’t like what’s happening to their individual countries.

Thank God the European economy is getting better because if it wasn’t, we’d be looking at a Grexit scenario on steroids and that would kill stock markets!

Don’t even think about an EU-exit.

History lesson

CNBC noted today that “Friday also marked the nine-year anniversary of the bull market. It also marks the “Haines Bottom.” Before the open on 10 March 2009, CNBC anchor, Mark Haines, called the bottom of the financial crisis on air.”

I saw him do it and as I had been warning that the worst was over for a month or two and that the first year after a crash can be very rewarding, I remember his call vividly. He was a legend of US business TV but never got to see how big his bull market call got to, as he passed away about two years later in May 2011.

The Week in Review:

• Are commodities warning us to be careful of a stock market crash? I take a look at how the prices are going to prove the canary in the coalmine.
• Paul Rickard analysed the reporting season that just passed, taking a close look at the Australian market which outperformed global markets.
• And to continue on the reporting season theme James Dunn looked at 3 positive shock stocks – Contrarian investors who ignore the markets immediate reaction can make good money.
• With International Women’s day on Thursday, Charlie Aitken wrote about his mother and the investment lessons he learnt from her.
• Ever wondered who gets your super? Graeme Colley discusses inheritance and SMSFs and how to prevent no-good money-grabbing layabouts from getting their hands on your SMSF.
• Small steps are being taken in the self-managed super space which could assist women, as Olivia Long discussed.
• Are women on boards better for your bottom line? Elizabeth Proust thinks that diversity is not just crucial to good governance but it’s also integral to better company performance.
• In the first Buy, Hold, Sell – What the brokers say, Ardent Leisure Group and Woodside Petroleum got upgrades in the last week of reporting season
• And in the second Buy, Hold, Sell – What the brokers say, things quietened down after reporting season but there was still plenty of good news with upgrades for Caltex and Woodside.
• For our International Women’s Day edition, we asked three women in different parts of the industry – Sarah Shaw, Julia Lee and Penny Pryor- for their best investments ever, and to share what they like about working in financial services for this week’s Professional’s Pick.
• Bluechip’s are back in our Hot Stocks with Qantas and BlueScope getting the tick of approval from our analysts.
• Plus, Paul Rickard answers all your Questions of the Week including a question about Dominos.
• Finally, if you missed our February webinar, you can view it here. Myself, Geoff Wilson from Wilson Asset Management and Paul Rickard answer your questions about the current market start.

Top Stocks – how they fared:

What moved the market?

• Everyone was up in arms this week after Trump announced a Tariff change he was thinking of placing. Major oil companies, Ford and other car companies will be mostly affected.
• Australia’s economy slipped to 2.4% over 2017, a step down from the annualised rate of 2.8% recorded in the third quarter which was weaker than market expectations.

 Calls of the week:

• “Today, I’m defending America’s national security by placing tariffs on foreign imports of steel and aluminium ,” Donald Trump
• Dr Ross Walker called out ABC’s Media Watch after they criticised him on their show on Monday night.
• In light of International Women’s Day on Thursday, Charlie Aitken wrote about his mother and said how she was the best investor in the family.

 The Week Ahead:

Australia

• Monday March 12  –  Credit & debit card lending (January)
• Tuesday March 13 – Housing finance (January)
• Tuesday March 13 – NAB Business survey (February)
• Tuesday March 13 – Speech by Reserve Bank official
• Wednesday March 14 –  Lending finance (January)
• Wednesday March 14 – Consumer confidence (March)
• Wednesday March 14 – Speech by Reserve Bank official
• Thursday March 15 – Tourist arrivals/departures (January)
• Friday March 16 – Speech by Reserve Bank official

Overseas

• Monday March 12  – US Monthly budget statement (February)
• Tuesday March 13 – US Consumer prices (February)
• Tuesday March 13 – US NFIB business optimism (February)
• Tuesday March 13 – China activity data (Jan-Feb)
• Wednesday March 14 – US Producer prices (February)
• Wednesday March 14 – US Retail sales (February)
• Thursday March 15 – US Philadelphia Federal Reserve survey (March)
• Thursday March 15 – US Empire State manufacturing (March)
• Friday March 16 – US Industrial production (February)
• Friday March 16 – US Consumer sentiment (March)
• Friday March 16 – US Housing starts (February)

Food for thought:

“The only source of knowledge is experience.” Albert Einstein

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:

 Top 5 most clicked:

1. Are commodities warning us to be careful of a stock market crash? – Peter Switzer
2. 3 positive shock stocks from reporting season – James Dunn
3. Investment lessons from my mother – Charlie Aitken
4. Buy, Hold, Sell – what the brokers say – Rudi Filapek-Vandyck
5. 3 professionals and their best picks – Staff Reporter

Recent Switzer Super Reports:

Monday 5^th March: International Women’s Day

Thursday 8^th March: A warning?

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.