Switzer on Saturday

America: is there anything it can’t do?

Founder and Publisher of the Switzer Report
Print This Post A A A
[table “426” not found /]

For professional stock market watchers, it was green on the screen overnight in the US, except for the VIX (which is a ‘positive’ reading for the fear index), indicating that stock players are getting less worried. And it was a ripper of a jobs report that has taken all US market indices higher. And I mean significantly higher, forcing all three indices into positive territory on Friday.

Driving this optimism was the November employment figure, with 266,000 new positions created when the consensus guess by economists was only 186,000! That was a big miss and you can see why Wall Street pounced on the result. Adding to the good vibes was the jobless rate, which dropped to 3.5%, which was the best level since 1969!

Rate cuts might be struggling here in Australia but they still have plenty of bang for their buck in the US, which has to feed the strongest story for the economy there – the consumer.

This should keep our market positive on Monday but the next focus for the worry warts on Wall Street will be December 15, when tariffs on $US156 billion of Chinese goods are supposed to come into force, if no trade deal is struck by that time.

The US President’s closest economics adviser, Larry Kudlow, said Mr Trump would “walk away” from his phase one trade deal, if the Chinese try to avoid important commitments.

“The president has said that if we cannot get the enforcement and the assurances, then we will not go forward,” Kudlow told CNBC. This latest position from the White House’s team spooked the stock market earlier in the week, so it has the capacity to rattle stocks and potentially KO the rally that we expect from Santa pre-Christmas.

While on good news, I have to share this week’s revelation from technical experts from Bank of America Merrill Lynch, whose research tells them that the S&P 500 could be poised to breakout and go as high as 3850. As I write, the Index is around 3150 so that would be a 22% gain!

Using market history of previous breakouts, the analysts think they see a similar pattern for the most recent moves higher for the Index. “History suggests that breakouts from these ranges should be powerful,” the strategists wrote in a note. CNBC says on the S&P 500, the 3063 level could be the bears’ last stand.

And the strategists point to the positive sign that the market advancement is based on a broadening of the rally, which is another good sign that something good could lie ahead for the market. Gotta hope these guys – Stephen Suttmeier and Jordan Young – are on the money.

Back home and I hope you took my Monday tip when I told you that “last Friday at the Wilson conference, Jun Bei Liu (of Tribeca Investment Partners) gave the big tick to Tyro, which lists on Friday and our own Paul Rickard has been on the board. Paul is too close to give a tip but it’s interesting to see the Tribeca team positive on the listing.”

The stock listed at $2.75 yesterday and finished at $3.38, which is a good result for the new bank that provides many of those machines you see in cafes, pubs and shops for ‘tap and go’ and other credit card payments.

For the week, the S&P/ASX 200 was down 2%, with the Index finishing at 6707. Recall the big negative for stocks was the Trump tariff talk, which extended to the likes of Argentina and Brazil for aluminium and steel exports to the USA, and France for their precious wine, cheese and other luxuries. Sacre bleu!

Not helping us was the disappointing growth number, which told us our economy grew by only 0.4% in the September quarter and 1.7% for the year. Right now, given the rising trend for the stock market, it suggests that forward indicators are still keeping equity investors in the game. That said, I don’t see them as positive as I’d like and I think most of you know how hard I try to squeeze an ounce of positivity out of the most negative stuff that economies and markets throw at us.

Banks received some overdue good news when the Reserve Bank of New Zealand went softer than expected on its capital demands on our local banks that operate in NZ. But all the other bad news still left the financial sector down 1.86% for the week.

As we’re nearly all bank share owners and watchers, this is how they fared last week, according to the AFR: “ANZ fell 1 per cent during the week to $24.59, National Australia Bank 1.85 per cent to $25.41, Westpac 1 per cent to $24.27 and Commonwealth Bank 2.26 per cent to $78.99.”

And I have to point out that CMC’s Michael McCarthy and Burman Invest’s Julia Lee gave our viewers to the Switzer TV Investing program a big leg up for oO!media. And on Wednesday the company lifted its earnings forecast for FY19. The stock rose 21% for the week. This TV program and our three-way chat about stocks we like is having a very good run.

What I liked

  • The trade surplus fell from $6.85 billion in September (previously $7.18 billion) to $4.5 billion in October. Australia has recorded 22 successive monthly trade surpluses. The rolling annual surplus was a record $64.4 billion in the year to October, which is the best news on the economy.
  • Australia’s rolling annual trade surplus with China rose from $66.82 billion to a record $67.79 billion in October. Annual exports to China were at new record highs. Australia exported a record $14.49 billion goods to the US in the year to October.
  • The RBA left the cash rate at a record low of 0.75% but it remains a true believer about rate cuts. This is what it told us: “The lower cash rate has put downward pressure on the exchange rate, which is supporting activity across a range of industries. It has also boosted asset prices, which in time should lead to increased spending, including on residential construction. Lower mortgage rates are also boosting aggregate household disposable income, which, in time, will boost household spending.”
  • The CoreLogic Home Value Index of national home prices rose by 1.7% in November, the biggest increase since October 2003. And capital city home prices rose by 2% – also the biggest lift in 16 years. Regional home prices rose by 0.5% in the month.
  • The ANZ-Roy Morgan consumer confidence rating rose by 1.2% last week, lifting from 4-year lows to stand at 108.1 points. Sentiment is below both the average of 114.3 points held since 2014 and longer term average of 113.1 points since 1990.
  • In the US, the Challenger survey found job cuts fell from 50,275 to 44,569 in November. Factory orders rose by 0.3% in October as expected.
  • Economic data was positive for the US, with the trade deficit the lowest since May 2018.
  • The ISM services index in the US fell from 54.7 to 53.9 in November (forecast 54.5) but any number over 50 means the sector is expanding. The Markit gauge on business activity rose from 50.6 to 51.6.
  • The Caixin manufacturing index in China rose from 51.7 to 51.8 in November (forecast 51.4).

What I didn’t like

  • Retail trade was flat in October, with the annual growth rate falling from 2.5% to a 2-year low of 2.1% but Craig James has a positive take on this weak number (see below).
  • The Australian economy grew by 0.4% in the September quarter but it was below the consensus of 0.5% to 0.6%, after growing by an upwardly-revised 0.6% in the June quarter. Annual economic growth rose from 1.6% to 1.7%.
  • In November, 84,708 new vehicles were sold, down by 9.8% over the year. This is the biggest annual decline in a decade.
  • The Australian Industry Group (AiGroup) Performance of Manufacturing Index fell from 51.6 points to a 3-year low of 48.1 points in November. Any reading below 50 indicates contraction in activity.
  • German industrial production fell 0.4% in October (forecast +0.3%).
  • The price of oil spiked as the OPEC+ group agreed to further oil production cuts.
  • The ISM manufacturing index in the US fell from 48.3 to 48.1 in November (forecast 49.2).

Could this be a good omen?

CommSec’s chief economist, Craig James, looked at the flat retail numbers for October and said: “If you have been given a handout by the government, would you spend it immediately or wait to spend it at a time when it had greater purchasing power – like Black Friday/Cyber Monday sales? Most people would say the latter.”

And on the same day, CBA’s Kristina Clifton gave credence to Craig’s speculation by pointing out that “a sample of our credit card data shows that retail goods spending lifted around 87% on Black Friday (29 November) compared to the average spend in the three weeks prior.” She has seen spikes in Black Friday spending in previous years but they only averaged around 28%!

If you weren’t able to join us in yesterday’s webinar or would like to watch it again, click here to view the recording.

The week in review:

On our YouTube channel this week:

Top Stocks – how they fared:

The Week Ahead:

Australia
Tuesday December 10 – Reserve Bank Governor speech
Tuesday December 10 – NAB business survey (November)
Tuesday December 10 – Residential prices (September)
Wednesday December 11 – Monthly consumer sentiment (December)
Thursday December 12 – Overseas arrivals/departures (October)
Thursday December 12 – Reserve Bank Bulletin
Thursday December 12 – Credit & debit card lending (October) 

Overseas
Sunday December 8 – China International trade (November)
Tuesday December 10 – China Inflation (November)
Tuesday December 10 – US NFIB Business Optimism (November)
Tuesday December 10 – US Productivity/labour costs (Sept quarter)
December 10, 11 – US Federal Reserve meeting
Wednesday December 11 – US Consumer prices (November)
Thursday December 12 – US Producer prices (November)
Friday December 13 – US Retail sales (November)
Friday December 13 – US Export/import prices (November) 

Food for thought:

“Go for a business any idiot can run because sooner or later, any idiot probably is going to run it.” – Peter Lynch

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:

This table published by Fidelity and shared by David Scutt on Twitter shows that December is usually one of the best months for stock market returns on the S&P/ASX 200:

Top 5 most clicked:

Recent Switzer Reports:

Monday 02 December: 5 great income ideas for 2020

Thursday 05 December: Why I buy structural growth companies

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.