While Friday on Wall Street was mostly negative, after a doozy of a week for positivity and given inflation and Trump tariff concerns, it was a huge effort showing that the market, at the moment, thinks tailwinds for stock prices outweigh headwinds.

Donald Trump is hard-to-read. The prospect of reciprocal tariffs and Fed boss Jerome Powell not liking the slightly higher-than-expected inflation readings from the Consumer Price Index and the Producer Price Index, have stock players not sure if the two expected rate cuts will show up this year. However, like inflation, these obstacles to rising stock prices could become much bigger brakes on share prices if Europe and China return fire. That has to be a nagging concern, though the majority of investors are sticking with a belief that the US President wouldn’t want his tariff talk to turn into a trade war that would send share prices crashing.

Those paid to guess the future of economies and stock markets, such as AMP’s Shane Oliver, aren’t ruling out a 15% correction this year, with inflation and tariff threats hovering. But Oliver still thinks stocks would recover to make 2025 another good year for stocks.

As long as we don’t get a surprise tariff slug from our closest ally and US inflation doesn’t go crazy high, then with our expected rate cut start next week, the promise of three or four cuts could mean we see a good year for stocks too. Mind you, if Donald Trump hadn’t won and the US wasn’t looking at lower taxes and less regulation, on top of the AI tailwind, I would’ve been tipping our stock market could have outperformed the US market. But not with the man from Mar-a-Lago minding the fort that is the US economy!

By the way, the inflation numbers have been slightly re-interpreted and CNBC reports that “sentiment appeared to calm after January’s producer price index”, following the CPI report earlier in the week looking too hot. “It looks like the economy and inflation aren’t runaway accelerating, causing pressure on rates,” said Matt Stucky, chief portfolio manager at Northwestern Mutual Wealth Management Company. And CNBC added that he said the recent move downward in the 10-year Treasury yield is “improving breadth, but it’s also lifting asset prices on the equity side because of that correlation dynamic”.

Friday saw bond yields keep slipping and that’s a plus for stocks. Meanwhile, the lower-than-expected retail sales number (down 0.9% in January, when 0.2% was expected) looked like a plus for hosing down fired-up inflation concerns.

Another positive for stocks has to be US reporting season, with around 77% of S&P 500 companies now reporting their December quarter profit results, with 75% beating earnings expectations on the upside against a norm of 76%.

Therefore, consensus earnings growth expectations for the quarter have risen to 12.5% year-on-year, which is up from 8.4% tipped at the start of the reporting season, with tech and financials leading the way.

To the local market and we continued to set all-time record highs, despite tariff and inflation concerns, but the hope for a rate cut next Tuesday must have been a help. The ASX 200 index ended up 1.11% for the week to end at 8,555.80.

It’s early days in the Australian December half-year earnings reporting season, with only about 25% of major companies having reported.

Consensus expectations are for flat earnings this financial year after two years of unexciting profit falls, with resources and consumer staples results disappointing, while IT, telcos and industrials fared better. So far, beats are running above misses, with 43% of results surprising consensus earnings expectations on the upside, which is more than the norm of 40%, and just 29% having surprised on the downside, which is less than the norm of 41%.

While these are good signs, experts remind us that it’s early days for reporting numbers.

For the overall market, we could start the week in a negative mindset. Tariffs are bound to take centre stage for Wall Street and global markets, while the Reserve Bank and its rate decision are bound to hurt or help our stock market this week.

I’m tipping a cut. We need one because the private sector is feeling the pinch of consumers and businesses weighed down from 13 rate rises, but I don’t make that call with 100% confidence.

Now to the star and struggling companies that enjoyed or suffered a 5% or more move over the week:

The stars…

1. Healius was up 9.23% to $1.48 on buyer interest.
2. Domain was hot property, up 13.14% to $3.10.
3. Mirvac built a nice gain, up 8.09% to $2.11.
4. Dexus was on a rise, up 5.35% to $7.78.
5. Sigma got the right partner in Chemist Warehouse, rising 9.47% to $3.12.
6. Computershare surged 20.73% to $42.51.
7. Seven Group Holdings (SGH) rose 12.26% to $54.58.
8. Light & Wonder shone, up 10.42% to $97.81.

The strugglers…

1. AMP lost it, down 13.62% to $1.49
2. Cochlear gave up 15.29% to $262.73
3. Mineral Resources slumped 7.19% to $32.39.
4. IAG wasn’t impressive enough, down 11.55% to $7.81.
5. Amotiv lost 6.02% to $10.

What I liked

1. This from Shane Oliver: “We expect the RBA (Tuesday) to finally begin cutting interest rates after the 13 hikes starting in May 2022, with a 0.25% cut to 4.1% on the back of a further increase in confidence that inflation is moving sustainably to the 2-3% target range”.
2. Record highs on the local stock market.
3. 72% of companies have seen earnings rise on a year ago, and this is better than the norm of 57%. 63% of companies have increased their dividends on a year ago which is above the norm of 59%.
4. This from Shane Oliver again on Trump tariffs: “The delayed start of the “reciprocal tariffs” till after the trade policy reviews are completed on 1 April suggest that they may also be a negotiating ploy. But they will also raise a lot of issues: their level will be hard to work out because the US will consider not just tariffs”.
5. More from Oliver: “One third of Australian iron ore exports go the US but the direct impact on the overall economy is likely to be minor as iron and steel exports to the US are just 0.03% of GDP, pharmaceutical exports to the US are just 0.08% and total exports to the US are just 0.9% of GDP.
6. Inflation in US company earnings calls is continuing to trend down,which is a good sign.
7. US small business optimism fell slightly in January but remains strong.

What I didn’t like

1. Trying to work out what President Trump’s tariff play will do to stocks.
2. US inflation a tad too high and rate cuts will be delayed.
3. Rising US bond yields.
4. In Australia, consumer confidence was little changed in February, suggesting that the bounce in confidence may have stalled at still soft levels.

Big week for Oz stocks

While Tuesday and the RBA decision will be big news next week, we also see the latest jobs report. If the central bank cuts the cash rate, they’ll want to see a rise in the jobless rate. The tip is only 10,000 jobs would’ve been created in January but if it’s much higher and the current unemployment rate of 4% doesn’t move higher, then the next rate cut will be longer down the track, and the Prime Minister is bound to call an early election. He’ll argue that rates are falling, inflation is beaten and we’re still creating jobs!

He’ll be much happier than RBA Governor Michele Bullock who might think she has cut too early.

The data drops next week will have a lot of economic and political significance.

“I’ve decided for purposes of fairness that I will charge a reciprocal tariff,” President Trump said in the Oval Office on Thursday. “It’s fair to all. No other country can complain.”