Switzer on Saturday

How Wall Street rises despite two big threats

Founder and Publisher of the Switzer Report
Print This Post A A A

The irrepressibility of Americans, especially those on Wall Street, was seen at its best this week, with all four closely watched market indexes strongly in the green on Friday, despite the black cloud of the Middle East hovering and the US election looming in just over three weeks. Clearly, the consensus view doesn’t agree with legendary hedge fund manager, John Paulson, who thinks a Harris win would lead to a recession!

This week, News.com.au reported that “Billionaire hedge fund manager John Paulson has threatened to remove his money from the US markets if Vice President Kamala Harris defeats former President Donald Trump in November’s presidential election”.

And this is Paulson in his own words: “It depends on the policy, if Harris is elected, I would pull my money from the market. I’d go into cash, and I’d go into gold because I think the uncertainty regarding the plans they outlined would create a lot of uncertainty in the markets and likely lower markets”.

Of course, Paulson didn’t say when the recession would happen, and it looks like more a call to politically influence rather than one based on credible analysis. Right now, Wall Street seems at odds with him.

On my analysis, I will get more defensive in 2025 because the US market has gone up steeply and sell-offs often happen after a huge spike in interest rates. But the Harris policies are likely to be like Biden’s and the market has spiked around 65%, which is 16% a year.

Overnight, the gains were helped by no bad news out of the Middle East about escalation of the warring. What we’re seeing is more of the rotation out of the big tech stocks into other companies that suffered when interest rates were rising. “What we’re seeing — and I think you’re seeing it hit pretty hard today, in a good way — is a broadening of the market,” said Craig Sterling, head of U.S. equity research at Amundi US, to CNBC.

This positive move has been reinforced by the fact that third-quarter earnings season has started strongly. The likes of JPMorgan rose 5% on better revenue and profit results and Wells Fargo put on 6%, despite lower revenue and falling net interest on their transactions. “Net interest income used to be the bellwether of whether [a] bank is doing well or not,” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “Investors have comprehended that they’ll make money in good times and bad.”

What Wall Street is banking on is an economy that has falling inflation, solid corporate profits and better-than-expected growth. This week, the inflation story was negatively affected, but only just. The September CPI came in at 0.2% when 0.1% was expected and it followed a huge creation of jobs in September — 254,000 — and unemployment falling from 4.2% to 4.1%.

These two numbers could have been reasons for more caution around stock prices, but the Producer Price Index (PPI) came in under the expected forecast of 0.1%.

The general view was captured by David Russell, global head of market strategy at TradeStation, with this: “Overall, these numbers are getting less impactful as inflation moderates. The Fed could still be on track for 25 basis points at the next two meetings.”

Current money market thinking is there is an 86% chance of the Fed reducing the November cut from the once expected 0.5% to 0.25% because the US economy looks less prone to a recession, despite the Paulson predictions.

S&P/ASX 200 (6 months)

To the local story, and the S&P/ASX 200 Index lost 0.1% (or 8.5 points) to 8214.5 on Friday but was up 0.8% over the week. Over the past six months, the gains have been 5.48%, which is pretty good for the toughest part of a trading year, especially when expected interest rate cuts still look to be a 2025 event, which has disappointed the market.

Here are the STAR stocks for this week…

  1. Siteminder up 8.53% to $6.74
  2. Audinate rose 7.64% to $10.15
  3. Block up 6.24% to $105
  4. ZIP put on 12.31% to $2.92
  5. Arcadium Lithium up 33.88% to $8.18 thanks to Rio’s offer.
  6. John Lyons Group up 6.34% to $3.86.

And what about the Strugglers?

I couldn’t pick a big dropper, though I’m sure there were a few.

What I liked

  1. This from NAB on US growth: “We now expect GDP growth of 2.7% (previously 2.6%) for 2024 and 1.9% (was 1.7%) for 2025.
  2. NAB’s September business survey yesterday showed Business Conditions up 3 points to +7 and Business Confidence up 3 points to -2.
  3. Westpac Consumer Confidence rose 6.2% month-on-month to its highest since May 2022, though it’s still below 100 at 89.8.
  4. NAB’s view on RBA minutes: “RBA not explicitly pushing back on market pricing of early 2025 rate cuts.”
  5. Oil prices fell this week.

What I didn’t like

  1. US CPI up 0.2%, not 0.1% as expected. Core inflation was up 0.3% not 0.2%, which was the consensus view of economists.
  2. Initial Jobless Claims in the US came in at 258,000 vs. 230,000 expected.

Big recession calls & Rene Rivkin

I was asked about the John Paulson recession call on radio this week and told my interviewer that his prediction reminded me of what Rene Rivkin shared with me after the 1987 crash, when he tipped a recession, falling house prices and financial Armageddon. However, there was a period of market improvement. But when the recession came in 1990, I reminded Rene of how he had tipped this years ago. His reply has always stuck with me and has shaped my views on big call merchants. This what he said: “I told you that a recession would happen, but I did not say precisely when it would happen!”

Timing is everything but not for big call merchants, at least not in their minds. Luckily for them, most journalists don’t remember their big calls!

Switzer This Week

Switzer Investing TV

  • BOOM DOOM ZOOM!: Peter Switzer & Paul Rickard answer your questions on PLS, SDF, WBC & more

Switzer Report

Switzer Daily

 

The Week Ahead

Top Stocks — how they fared

Most Shorted Stocks

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 

 

Revelation of the Week
“Historically, US shares have done best under Democrat presidents with an average return of 14.4% pa since 1927 compared to an average return under Republican presidents of 10% pa. However, the best average result has actually occurred when there has been a Democrat president and Republican control of the House, the Senate or both and the worst average return has been when there’s been a clean Republican sweep.”
– Shane Oliver, AMP.

 

Chart of the Week

What kind of US President or Congress is best for your stocks?


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.