Switzer on Saturday

Let the good times roll…

Founder and Publisher of the Switzer Report
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The good times and the good news keep on rolling in, with the Fed’s preferred measure of inflation i.e. the Personal Consumption Expenditure index (or PCE) coming in at a lower-than-expected 0.1%. This means the annual rise was 2.2%. That August number was down on July’s 2.5% and was lower than the economists’ average guess of 2.3%.

Core PCE, which is a more reliable read on inflation, was 2.7%, which was pretty well what the number crunchers expected.

This is how Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley saw the result: “All quiet on the inflation front… add today’s PCE Price Index to the list of economic data landing in a sweet spot. Inflation continues to keep its head down, and while economic growth may be slowing, there’s no indication it’s falling off a cliff”.

It looks like the Goldilocks scenario I’ve been expecting i.e. a US economy that not too hot for inflation to breed and not so cold that it brings a nerve-shivering recession.

All the above explain why stocks continue to go higher, with the latest significant tailwind being the outlook for lower US interest rates, which will help all those companies/stocks that were punished for carrying debts as the Yanks copped 11 interest rate rises.

Another tailwind entered the mix for stocks worldwide, with China embracing what looks like a “whatever it takes” stimulus policy, which was very positive for shares this week. This was a two-gun blasting of both monetary and fiscal measures to kickstart the Chinese consumer and the Chinese economy, which do go hand-in-hand.

The China slam dunk winning goal for more growth not only sparked a 15.7% surge in the CSI300 Index, it even excited European markets. As an indicator of how important China is to some of the world’s greatest companies, CNBC Europe reported that “…shares of Italian fashion group Moncler surged over 10%, hitting the top of the European benchmark. It comes after French luxury giant LVMH struck a deal to invest in Double R, an investment vehicle controlled by Moncler, Reuters reported. Shares of LVMH rose 2.4% on the news.”

To gauge the rush from Beijing’s big move this week, Barclays has nominated these 5 stocks to win from the surge of expected demand from China — UK insurer Prudential, cosmetics giant L’Oreal, carmakers BMW and Mercedes, and miner Rio Tinto. The latter is tipped to rise 30%!

The good times are rolling! As long as recession threats are contained and we see cuts in interest rates here ASAP, then my forecast about stocks doing well from the December quarter and rolling into 2025 looks like a pretty good bet.

That said, we will be monitoring the data drops that to date have been pretty damn good.

For the record, the Dow ended up 137 points to close at 42,313 while the S&P 500 was down a measly 7.2 points to 5,7398.17, while the Nasdaq gave up 70.70 points to finish at 18,119.59.

The Dow was at a record close and the other indexes need a breather but there’s no big worry right now for stocks, which is a good thing!

To the local story and the S&P/ASX 200 rose a mere 0.1% on Friday. For the week, the index ended at 8212.20, which was a mere rise of a lousy 2.7 points. How did that happen? Well, we saw the start of the rotation out of banks and into our big miners, along with smaller companies that had been beaten up because of higher interest rates or because China has been growing slowly.

This week we saw inflation come in at 2.7%. Despite the media preoccupied with the battle between the RBA’s Michelle Bullock and Treasurer Jim Chalmers when inflation is good enough to start cutting rates, the market is typically buying stocks in advance of potential rate cuts, which now look likely by February next year at the latest.

Here are the stars and strugglers for the week. But before that, was Star Entertainment a star or struggler? On Friday, the share price slumped 41.11% on a plethora of bad news but it rose 16.28% for the week!

The Stars!

  1. Mineral Resources was up 39.56% to $49.14.
  2. Champion Iron spiked 29.2% to $7.30, which even surprised me but let’s thank China for that.
  3. Paladin Energy was up 17.05% as Mike Gable has been predicting!
  4. Fortescue surged 15.82% to $20.10, which was another nice Gable suggestion.
  5. A2Milk was up 18.82% to $6.25 on China spending news.
  6. Treasury Wine was up 10.83% to $11.97.
  7. Siteminder was up 20.74% to $6.20.
  8. Liontown Resources up 24.6% to 79 cents on short sellers reacting to China, etc.

The Strugglers…

  1. Light & Wonder slumped 18.37% to $134.41 on a potential copyright infringement issue.
  2. Premier Investments was off 8.99% on management issues.
  3. CBA was down 6.66% to $134.16 on that rotation I’ve been predicting.
  4. NAB lost 6.86% to $36.94 on that rotation I’ve been predicting!
  5. ANZ was down 4.04% to $30.44 on that same rotation I’ve been predicting!!
  6. WBC was off 5.24% to $31.80 again on that rotation I’ve been predicting!!!

What I liked

  1. Australian business conditions PMIs for September weakened again. Input and output prices fell particularly for services and work backlogs remain weak, all of which are good signs for the RBA and potential rate cuts,
  2. Australian job vacancies continue to fall, pointing to weaker jobs growth ahead. They fell 5.2% in the three months to August and have fallen for nine quarters in a row and are down 30% from their high.
  3. The Australian dollar advanced to its highest level in 19 months against the greenback, after sweeping measures from China to support economic growth bolstered demand for risk assets linked to its economy. This is good for lowering inflation.
  4. The CPI is at 2.7% and the core measure at 3.4%.
  5. The CBA economics team still thinks we could see a rate cut in December.
  6. China steps up monetary stimulus, with ramped up fiscal stimulus on the way and Chinese stocks surged 15%.
  7. Atlanta Fed’s GDPNow estimate of current quarter GDP growth suggests growth is tracking around 2.9%, which is good for stopping Wall Street worrying about a recession.

What I didn’t like

  1. The arguments that inflation will spike when electricity subsidies are taken away next year. This ignores other factors that could bring prices down, such as a higher dollar.
  2. Most economists think the first rate cut will be February next year at the earliest.
  3. Economic weakness in Europe but at least they are cutting interest rates.

Being wrong for a while can be rewarding

This week China chimed in with a big stimulus strategy and BHP and other miners headed north. We have predicting this and have looked wrong. We advised you to hedge your OS investments and we looked wrong for at least a year but with the Oz dollar at 69.04, we now look a lot smarter nowadays. The same applies to last year’s positive calls on CSL, Macquarie, Resmed and Xero. When it comes to investing, if you go for quality when prices look low, it generally proves rewarding.

 

Switzer This Week

Switzer Investing TV

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 

 

Qoute of the Week

RBA Governor after the bank’s board meeting and before headline inflation came in at 2.7% on Wednesday: “The point I would make is that if tomorrow we get an inflation number with a two in front of it, so it’s back in the band, that doesn’t mean that we’ve got inflation under control. It doesn’t mean that inflation is sustainably back within the band.”

 

Chart of the Week

Headline inflation is now in the 2-3% band but the RBA wants the annual trimmed mean (the orange line) in this preferred band. This core inflation measure fell from 3.8% to 3.4%.


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.