Wall Street had another negative day but this time I can’t blame President Donald Trump. No, this stocks’ slide is a pretty normal issue that can say one of two things. And that would be a question that asks: Is this the start of something good, or bad?

This is classic climb the wall of worry stuff, which markets have dealt with before, many times, unlike a President like Donald. The spook factor links to the bond market, where the yield curve is starting to flatten.

It’s happening because the 2-year bond is starting to catch up on the 10-year bond. If it goes above, the yield curve is negative sloping and this, historically, points to a recession on the horizon. You never can tell when it shows up but it alarms enough investors to hurt the progress of the stock market.

What we know is that the 10-year bond yield was at its highest level since late February but the 2-year yield was at a decade high!

That does seem scary but reflect on 10 years ago and we were right in the middle of the GFC market crash, so that’s not all that surprising. The US economy and corporate earnings, along with the wisdom of the Fed, will determine where stocks head.

The chief economics correspondent on CNBC, Steve Liesman, said this could be the bond market telling the Fed that you’ve done enough on rate rises and “maybe we have to reassess the question in the market: is it three or four [rises] or is it two or three?”

Former Treasury Secretary, Larry Summers, thinks a recession is likely over the next three years but he still thinks the chances are 20%, or one in five.

Meanwhile, Tom Lee of Fundstrat Global Advisors, who not long ago tipped that the bull market could go on for 11 years (I did ask what medication he was on), says the history of an inverted yield curve and recessions can’t be ignored. However, he’s not sure an inverted yield curve is a definite starter this year. Let’s hope he’s right but I do worry about his 11-year call.

Away from the spooky bond market and Apple didn’t help stock market indexes, with a 4% plus fall, after Morgan Stanley tipped its June quarter iPhone sales would underwhelm Wall Street.

Ironically, GE reported very well and this should have been a reason to take stocks higher but the Apple and yield curve stories held more sway with investors.

On reporting season so far, 16% of companies in the S&P 500 have reported and a big 81.5% have beaten market expectations. And this trend continues next week, when a huge one-third of companies in the Index, including some of the tech giants such as Microsoft, Alphabet and Intel, do show-and-tell.

If it’s a good week, it might KO the negativity bred by Donald and the bond market.

Back home and it might not feel like it but yep, we defied gravity to see our stock market gain a lousy 39.7 points for the week, despite a 12-point loss on Friday. The S&P ASX 200 was left at an unconvincing 5868.8 and, believe it or not, we’ve now been up three weeks in a row!

But the gain has only been 1.8%. Ever since the US President went o’tweeting about tariffs, we’ve lost 3.1% and, at its worst, we were down nearly 5%. However, there’s a bit of Royal Commission negativity in those losses as well.

Imagine how much better our stock portfolios and our super balances would look if Donald Trump had given up tweeting for the New Year and we’d never heard of something so bad for bank stocks as the Haynes Royal Commission?

Thankfully, our miners have kept us in the game, with aluminium prices spiking, thanks to sanctions on a Russian miner called RUSAL. This pushed the price of aluminium up for the week! Nickel prices also had a sanctions updraft, so at least Donald’s strange approach to international diplomacy has had a positive impact on stocks for the first time in 2018.

The banks and AMP have had a week worth forgetting, with the latter’s CEO, Craig Mellor resigning and the share price plummeting close to 10%!

Perpetual was clobbered, after telling the market it had lost $2.6 billion from its funds management business, while Village Roadshow was smashed by nearly 26%, after saying the Commonwealth Games and crappy weather had hurt its earnings.

What I liked

• Economy-wide spending continued to post firm gains in March. The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, rose by 0.7% in trend terms in March. The BSI has now risen by 0.7-0.8% a month for the last five months.
• The unemployment rate was steady at 5%.
• A record 1,398,800 Chinese tourists travelled to Australia over the year to February, up by 12.5% over the year. Also, a record-high 802,200 visitors from the US travelled to Australia, up by 10% over the year to February. And a record-breaking 311,500 Indian tourists travelled to Australia over the year to February, up by 6.7%.
• The Internet Vacancy Index rose by 0.9% to 87.5 in March in trend terms, after increasing by an upwardly-revised 1.2% in February (previously reported +0.6%). The index has risen for 18 consecutive months – the longest period of growth since March 2011. The index has increased by 12.1% over the year to 5½-year highs.
• The International Monetary Fund (IMF) left its forecast for global economic growth unchanged at 3.9% in 2018 and 2019, up from 3.8% in 2017. If realised, it would be the fastest pace of growth in seven years. Australia’s economy is forecast to grow by 3% in 2018 (up from 2.9% forecast previously) and 3% in 2019.
• Iron ore prices rose by 2.8% on Friday, as stronger steel prices drove demand for the commodity. Iron ore prices rose by 5.5% this week, rising from $US64.75 to $US68.30 per tonne.
• Oil prices have hit their highest levels since late 2014, as OPEC-led supply cuts reduced excess supply.
• US company reporting continues to keep people like me positive about stocks going forward.
• According to the latest Beige Book, the US economy expanded at a modest-to-moderate pace in late March and early April. “Robust” business borrowing was noted, prices increased at a “moderate” pace, while wage growth was only “modest”.
• Late on Tuesday, the People’s Bank of China unexpectedly said it would cut the reserve requirement ratio (i.e. the amount of cash that most commercial and foreign banks must hold as reserves to pay back medium-term lending facilities). This sent commodity prices up. The STOXX basic materials index rose by 4.4% – the biggest daily gain since the US presidential election in November 2016.
• US housing starts rose by 1.9% to 1.319 million units (forecast: 1.262m) in March. Building permits rose by 2.5% to 1.354 million units (forecast: 1.323m) in March. Industrial production rose by 0.5% (forecast: +0.4%) in March.
• The Chinese economy grew at a 6.8% annual rate in the March quarter (forecast: +6.7%). The economy grew at a 1.4% pace in the March quarter (forecast: +1.5%).

What I didn’t like

• The Royal Commission revelations about the behaviour of our financial institutions was always going to be bad PR but it has been ugly stuff that had to hurt bank stock prices. My question is: Does it permanently hurt them?
• The job numbers were OK but a little worrying, though the ABS’s calculator worries me. Employment rose by 4,900 in March (20,000 was expected!), after a 6,300 fall in jobs in February, which previously was reported as a rise of 17,500 jobs. Whose doing the counting and can we trust whoever that is?
• The bond market story about the inverted yield curve, which is a big deal.
• Total new lending commitments (housing, personal, commercial and lease finance) fell by 1% in February to $70.7 billion, down from US$71.4 billion in January. And lending for alterations and additions fell from $377.3 million in January to $337 million in February – the lowest level in three years. (However, it’s not all disastrous, with commitments up by 4.7% on a year ago.)

Investor Strategy Day

Over the past week and a bit, with three days in Sydney, Brisbane and Melbourne, we had over 2,000 subscribers and potential Switzer followers show up to our Investor Strategy Days. It was great to meet many of you and I hope those who couldn’t make it, think about coming when next we get together.

The feedback was fantastic and not only did we give out great investing info to the attendees, we were able to understand more about what you would like my team to deliver. Thanks very much for that.

The Week in Review:

• Worried about Trump? I explain why I believe we can all remain calm about this long bull market and reveal some of the surprise take-aways from our Investment Strategy Day
• With prices falling, is now the time to buy more of Telstra? Paul Rickard examined the case for and against the telco to offer his conclusion.
• In case you weren’t at our event, Charlie Aitken presented his Winning Strategies for 2018. Watch it here!
• Australia has a strong reputation in the biotech space and James Dunn pointed to three rising biotech stars.
• With artificial intelligence and cybersecurity gaining momentum, there’s plenty of new opportunities out there for long-term investors. Tony Featherstone looked at 3 stocks to cash in on the Industrial Revolution 4.0
• In the first Buy, Hold, Sell – What the brokers say, there were upgrades from Fortescue and Rio while Mirvac was in the not-so-good-books.
• And in the second Buy, Hold, Sell – What the brokers say, the Bank of Queensland and Harvey Norman both had upgrades.
• In this week’s Professional’s Pick, Chris Bedingfield from Quay Global Investors sees a lot of value in this deeply misunderstood company. Find out what it is.
• Featured in this week’s Hot Stocks is a firm that’s helping to share Aussie BBQs with the world and a company that makes baby products.
• Plus, Paul Rickard answered reader’s queries about adding corporate bonds to a portfolio and whether it’s better to switch to international equity in super.

Top Stocks – how they fared:

What moved the market?

• US quarterly company earnings season got off to a good start.
• Commodity prices soared with the IMF upgrading its forecast for world economic growth by 0.2% to 3.9% in CY18 and CY19.
• Some shameful revelations at the Banking Royal Commission.
• Trump tweeting again and his air strikes on Syria.

 Calls of the week:

• Worried about Trump? Fear not! I say that Telstra 5G could be a winner.
• I also called that our top 20 stocks are being TRUMPED!
• AMP chief executive Craig Meller made a call to resign after the  shock revelations at the Banking Royal Commission.

The Week Ahead:

Australia

• Tuesday April 24 – Consumer price index (March quarter)
• Thursday April 26 – Export & import prices (March quarter)
• Friday April 27 – Producer price indexes (March quarter)

Overseas

• Monday April 23 – US, Europe ‘Flash’ purchasing managers
• Monday April 23 – US Existing home sales (March)
• Tuesday April 24 – US Richmond Federal Reserve survey (April)
• Tuesday April 24 – US Home prices (February)
• Tuesday April 24 – US Consumer confidence (April)
• Tuesday April 24 – US New home sales (March)
• Thursday April 26 – US Trade in goods (March)
• Thursday April 26 – US Durable goods orders (March)
• Friday April 27 – US Economic growth (March quarter, advance)

Food for thought:

 “You cannot escape the responsibility of tomorrow by evading it today” – Abraham Lincoln

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:

The global economy is continuing to grow above its potential growth rate, exhibiting broad-based momentum, even though economic data releases have softened, especially in Europe, in recent months.

Top 5 most clicked:

1. When will Telstra be a bargain? – Paul Rickard
2. Go long Asia, OS dividend-payers and Telstra could be a 5G winner! – Peter Switzer
3. 3 stocks to cash in on the Industrial Revolution 4.0 – Tony Featherstone
4. Buy, Hold, Sell – What the brokers say – Rudi Filapek-Vandyck
5. Hot Stocks – BBQs & babies – Staff Reporter

Recent Switzer Super Reports:

Thursday 19^th April: Back to the future

Monday 16^th April: It’s a Trump market

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.