It was J-day on Wall Street with the Dow Jones index rocketing up over 770 points when I bounced out of bed. J-day? J for a Jobs Report that perked up those stock players who were over-worried about a US recession this year and then J for the Fed boss, Jerome Powell.

Let’s zoom in on the December Jobs Report that showed 312,000 jobs were created when only 176,000 were expected. And there were revisions to the October and November numbers telling us an additional 58,000 Americans got off the dole queue and into work. Unemployment snuck up to 3.9% but this was for the good reason that more people went looking for a job so the participation rate rose. Incidentally, economists, historically, say this is a good sign for the economy going forward.

But the huge market maker overnight was the Fed Chairman and his virtual message to the stock market, where from the get go in a speech he rammed home the argument that the US central bank was flexible when it came to interest rate rises. He told those who sold off after his previous chat on rates, which caused a huge dumping of stocks, that the Fed is not locked into a formula-based approach to raising rates.

Given the huge spike in employment, his words were very soothing for the market and showed that he had listened to those who have been trigger happy with stocks lately and I suspect he and the US President have had a quiet chat as well!

These were the words that Wall Street lapped up: “As always, there is no pre-set path for policy, and particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”

He also threw in the sensible comment that if its balance sheet reduction program is hurting the economy, he’d ease up, which KO’d another concern for Wall Street. This is where the Fed sells bonds to mop up the pile of money it threw at the US economy after the GFC, which is sensible to control inflation, but the market was worried it would intensify the tightening of monetary policy.

Anyone worried about an upcoming recession would have breathed a sigh of relief after hearing Mr Powell words of wisdom, albeit that they were overdue.

J-day turned around sentiment and swamped the negativity created by Apple the previous day when its CEO, Tim Cook, warned of a downgrade in its quarterly performance primarily because of what he saw as a China economic slowdown. Apple has often been seen as a bellwether company for the Chinese economy but Cook could be ‘cooking the books’ a tad as the company itself has had some underwhelming responses to their new products as well. Also there is talk that Chinese consumers don’t like Apples regular price hikes on top of the already high prices its products carry and a lot of customers might be unimpressed with the Trump trade war and how it’s affecting the prices they pay for US products.

One US expert who watches Apple said 30% of its revenue problem is macroeconomic but the rest is down to the company’s internal issues. On that subject, I’m an Apple devotee and have been for over 20 years but my latest laptop and phone have led me to scream “I hate Apple!” Unlike Steve Jobs, Tim and his team aren’t listening to their customers and it shows in their numbers and share price.

And while we’ve hated the stock market since the start of October, all the bad news has created a very bullish signal for stocks. The Bank of America Bull & Bear Indicator fell to 1.8, which screams the market is in “extreme bear” territory but historically that actually has been a great “buy” signal!

Helping any potential rebound for stocks was news out of China that the central bank has cut the reserve ratio that controls bank lending by 1% and that was seen as another plus for stocks. And if President Trump announces that an acceptable trade deal has been cracked with his Chinese counterpart, Xi Jinping, then we should see some positive stock market reaction.

Completing this pretty, positive picture would be a better-than-expected US company reporting season that starts in February and provided we don’t see too many Apple-like revelations, then we could be set for a 2019 rally. That said, if Trump fails and US companies disappoint, then it’s going to be a “here we go again” scenario, with stocks sliding magnified by the craziness that computer and algorithmic trading has delivered in recent years!

If you’re in holiday mode, here’s what happened locally on the stock market front.

The S&P/ASX 200 Index closed the week 34.9 points (or 0.6%) lower at 5619.4, which wasn’t bad considering the Yanks lost 2.2% until the great trading session on Friday or J-day, as I’ve called it.

Weak Chinese factory stats and the Apple news were no help but I did like our market’s reaction, showing that we might have the potential to be more locally influenced in 2019.

The China slowdown news wasn’t good for miners such as BHP and Rio and disappointing Christmas trading news from Kathmandu affected all retail stocks, which didn’t help the index but I wonder if this store is really a good indicator for overall retail?

Helping our market has been good oil price news, with analysts believing OPEC and its non-OPEC rivals set to cut production to offset the impact of rising US output. As the AFR reported: “Brent crude rose for a fourth consecutive session on Thursday, the first time it has done so since mid-November…”

What I liked

• The ‘final’ CBA/Markit Services Purchasing Managers’ Index (PMI) fell by 1 point to 52.7 points in December, but was 0.5 points higher than the ‘flash’ reading of 52.2 points. Any reading over 50 indicates expansion.
• The CoreLogic Home Value Index of national home prices fell by 1.1% in December to be down 4.8% in 2018 – the biggest annual decline since 2008. Over the year to December, Sydney home prices fell by 8.9%, but regional Tasmanian (up 9.9%) and regional Victorian (up 5.9%) home prices lifted. I like these falls because they are quite measured and overdue and it’s what monetary regulators wanted!
• The ‘final’ CBA Manufacturing Purchasing Managers’ Index (PMI) fell by 0.6 points to 54 points in December, but was 0.3 points higher than the ‘flash’ reading of 53.7 points. Any reading over 50 indicates expansion.
• Private sector credit (effectively outstanding loans) rose by 0.3% in November after a 0.4% rise in October. Annual credit growth fell from 4.6% in October to 4.4% in November. Investor housing finance was flat in November, with annual growth at the slowest rate on record of 1.1%. None of these numbers scream “housing disaster coming!”
• Annual deposit growth at banks in November was the slowest in 27 years, which might suggest that we are spending rather than saving, which is a good omen for the economy.
• China’s Caixin/Markit private sector services purchasing managers’ index rose by 0.1 point to a 6-month high of 53.9 points (survey: 53 points) in December. A level above 50 denotes expansion in activity.
• S&P500 bank shares rose by 1.8%, boosted by Barclay’s forecast that US large-cap bank shares could outperform the S&P in 2019.

What I didn’t like

• In December, 87,528 new vehicles were sold, down by 14.9% over the year. In the 12 months to December, sales totalled 1,153,111 units, down 3% on a year ago – the weakest annual growth rate since 2014. However, the industry has had record sales in recent previous years, so this had to happen.
• The ISM manufacturing purchasing manager’s index (PMI) in the US fell by 5.2 points to a 2-year low of 54.1 points (survey: 57.9 points) in December.
• The IHS Markit manufacturing purchasing managers’ index (PMI) fell by just 0.1 point to a 15-month low of 53.8 points in December (survey: 53.9 points).
• Apple’s first sales warning in nearly 12 years! The iPhone maker’s shares dropped 10% after the company slashed holiday-quarter revenue forecast for its flagship device, citing slowing sales in China.

It’s down to Donald

Now that Jerome Powell has hosed down fears of a silly rate rise policy in the US for 2019 and the Jobs Report shows that the US economy doesn’t look poised to go into a recession and China is taking steps to pump up its economy, we only need Donald to come up with a “let’s make a deal” play with his Chinese buddy on trade. If this happens, then that pretty reliable Bank of America Bull & Bear Indicator just might be absolutely on the money. I don’t want to contemplate the alternative.

Go Donnie!

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