Switzer on Saturday

Can Trump’s all-time highs be sustained?

Founder and Publisher of the Switzer Report
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Goldilocks still lives in Trump’s USA with the November jobs report, a potential market-hurting data drop, coming in a little better than expected. However, it wasn’t so strong as to make the influencers on Wall Street fear that the next tipped rate cut due on Wednesday week (December 18) would be canned.

Fear that the rate cut program could be delayed or derailed because of an economy that’s too buoyant could feed inflation and remains one of the downsides of this jubilation around the second coming of a President Trump.

Before the close, the Dow was down slightly but the S&P 500 and Nasdaq looked to have a positive finish on the way, with money market ‘prophets’ making a pre-Christmas or pre-Hanukkah rate cut an 88% chance of showing up as another present for US stock players.

For the record, non-farm payrolls rose by 227,000 in November, which was above the consensus forecast of 214,000 from the Dow Jones survey of economists. While this was hardly a worryingly bigger rise than tipped, the Fed could be wary that October had an upward revision of 36,000 jobs, though the initial number of 12,000 did look suss.

October is often a bad month for jobs but a looming presidential election, two hurricanes (i.e. Helene and Milton) and a number of strikes made these numbers unreliable for assessing the health of the US economy, that underpins this record-breaking run for stocks.

Out of this jobs data, one positive for believing a December rate cut is still in train is the fact that the jobless rate rose from 4.1% to 4.2%.

This overnight data adds to the credible view on why stocks can still trend up, that has been driven by the Fed’s rate cuts, the Artificial Intelligence boom and the promised Trump experience. These factors have all added to an economy that has delivered a Goldilocks recovery that’s neither too hot nor too cold but just right for optimistic share players.

The overall economic picture leads to a balanced view on why stocks still can resist a sizeable pullback.

This view expressed by Luke O’Neill, portfolio manager at Catalyst Funds, to CNBC is a case in point: “You’re seeing a labor market that is not weak but is definitely softening, and that is more than anything else what is giving traders more confidence in the 25 basis-point rate cut here at the upcoming meeting.

 “It’s not gangbusters, but we’re doing reasonably solid from an economic perspective and yet there is enough of a softening on the labor side to give plenty of air cover for the Fed to lower rates here.”

That looks spot on. Only a surprise “not this time” from Fed boss Jerome Powell on December 18 could rattle Wall Street and cancel the usual Santa Claus rally. Clearly, December 18 is an important date for stocks.

The market moves overnight give bitcoin punters an insight into how the cryptocurrency will react to what happens to stocks. Bitcoin was up 4.68% to US$101,594,

To the local story and the S&P/ASX 200 ended the week down 19 points (or 0.23%) to finish at 8420.90 after an all-time high of 8495.20 on Tuesday. Friday was a downer, with the market off 54 points following political chaos going global with France and South Korea encouraging market uncertainty.

But it has been a good 12 months, with the index up 17.31%, with a lot of all-time highs.

Let’s recap on the stars and strugglers of the week.

Here are the stars…

  1. Block Inc up 7.08% to $95.87.
  2. Ramelius Resources spiked 9.40% to $2.27.
  3. Capricorn Metals rose 5.21% to $6.86.

And the strugglers…

  1. Collins Food slumped 9.16% to $7.93.
  2. Siteminder gave up 6.98% to $6.13.
  3. Audinate lost 11.96% to $7.80.
  4. Fletcher Building fell 8.93% to $2.60.
  5. Liontown Resources dropped 14.38% to $0.63.
  6. Pilbara Minerals slipped 9.27% to $2.25.
  7. Iluka Resources was off 12.59% to $4.93.

What I liked

  1. Metal and iron ore prices rose.
  2. Weaker-than-expected economic growth of 0.3% for the September quarter and 0.8% for the year increased prospects for an earlier rate cut than May.
  3. Shane Oliver of AMP looked at the economic growth numbers and said: “We see a high chance of a February cut (around 50%) and its quite likely that RBA commentary in the week ahead becomes a bit more dovish to allow for that possibility.”
  4. Local home building approvals rose another 4.2% in October. The trend appears to be up, which is positive for home building and helps us dodge a recession.
  5. According to CoreLogic, home price growth slowed again in November and looks like softening further until rates start to fall. The RBA will like this development.
  6. The ISM services conditions index in the US slowed but is still okay and manufacturing conditions improved. This should keep the December rate cut on the cards.

What I didn’t like

  1. The local surge in public spending to a now record 28% of GDP gets in the way of an RBA rate cut.
  2. Retail sales here rose a stronger-than-expected 0.6% suggesting that maybe Australians are starting to spend more of their tax cuts, which doesn’t help with rate cuts.
  3. This huge public spending is exacerbating Australia’s productivity slump, with productivity down another 0.8% over the last year as private market sector productivity is invariably higher than public sector productivity.
  4. On Chinese data, the overall picture is that recent stimulus announcements haven’t led to a big rise in confidence and conditions but have helped stabilise GDP growth just below the 5% level.
  5. Political problems in France and South Korea.
  6. The bitcoin spike on the looming Trump presidency — this is an investment product we have to be careful about with the hype a real concern.

It’s all about the data

Next week’s run of data and what the Reserve Bank tells us after it doesn’t cut interest rates again on Tuesday will be important for stocks. The likes of AMP’s Shane Oliver think the weak economic growth numbers suggest a February rate cut could be on the cards. When we cut, the rotation play out of big cap into small- and mid-caps should pick up pace. Gauging the market’s belief in when rate cuts start is really crucial.

Meanwhile, the Yanks get the CPI number. This could be a plus or a negative on Wednesday and a 0.2% rise for core inflation is predicted. A bigger-than-expected rise could see the Fed renege on the expected December rate cut. The market wouldn’t like that!

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Disclaimer

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.