It’s been an odd week for stocks, with the S&P/ASX 200 Index sneaking out of its sideways trap that topped out in the high 5700s. Seeing a close of 5907 (up 10 points) on Friday makes me happy about my Monday Switzer Report, where I argued that you needed to ‘keep the faith’ with the Aussie market.

We’ve now had a two-week rally worth +3.4% and it’s ironic this happened while I was laid up in hospital, which made it hard for me to cautiously crow on my TV show!

In fact, in case you missed it, the total returns on Australian shares hit record highs on Thursday and CommSec calculated the total returns were up 13.7% on a year ago. So adding Friday’s gains, let’s call it 13.9%!

Not bad, you’d have to agree.

And we might get a third week of rises, if our stock market reacts as positively as Wall Street did overnight to tax/budget measures that make President Trump’s tax plan more passable and, therefore, believable.

It’s significant that this happened in the week when we remembered the Crash of 1987, which I pointed out this week was the crash I had to have!

Those looking for parallels between 1987 and now can see some but I think it’s safe for me to state: “This time, it’s different.”

Inevitably, I was asked by a number of people whether I thought we could rerun the Crash in 2017, with US stocks in record high territory. And this sums up why I said ‘no’ to the question:

• Interest rates are historically low, unlike 1987.
• Central banks have lent the world a lot of money and this could trip us up but I can’t see that happening for a year or so, and maybe longer.
• Donald Trump could be compared to Ronald Reagan but Donald is at the start, while Ronnie was near his endplay in ‘87. If Trump gets his tax plan passed by Congress, then this economic and market boom in the USA can go on for a few years but we have to watch how far these share prices get stretched.
• The economic picture is improving worldwide and emerging economies are hungry for growth, with many planning on big infrastructure spending, which will help sustain the rising bull market for stocks.
• I don’t think the Fed will screw up by raising rates too quickly.

But how come our market went more positive this week? It’s not clear-cut but here are some positives that helped stocks’ optimism:

• “Jobs data surprised on the upside yet again in September, with annual jobs growth of 3.1% at its highest since 2008 and unemployment continuing to trend down. Our jobs leading indicator remains strong pointing to continued solid jobs growth.” (AMP’s Shane Oliver)
• Fed Chair Yellen expressing ongoing confidence that inflation will rise and so the Fed remains on track for another hike in December (with the money market seeing a 77% probability) and likely another three hikes next year.
• US earnings results to date have been solid, with 81% of results beating on earnings and 79% beating on sales. That said, only 79 S&P 500 companies have reported so far.
• Chinese economic data basically told us that Chinese growth has stabilised at a solid rate and a surprise drop from growth looks less likely, at the moment.
• The December quarter is a good time for stocks and there can be dividend-chasing that helps the market go higher.
• And the US tax story, which was given a boost by the political win for the Republicans this week.

As you can see, there hasn’t been a standout reason for the more positive outlook for local stocks but with the dollar at 78.4 US cents, down from 81 US cents not long ago and with four rate rises expected in the USA over the next 15 months, when we could see one or none, the profit numbers for currency-sensitive stocks have to be on the improve.

What I liked

• The 50-point rise in the market this week.
• Employment rose for the 12th straight month, up by 19,800 in September, after rising by 53,000 in August (previously reported as a rise of 54,200 jobs). Full-time jobs rose by 6100, while part-time jobs rose by 13,700. Economists had tipped a 15,000 to 20,000 increase in jobs.
• Unemployment fell from 5.6% to 5.5%. To two decimal points, the jobless rate fell from 5.57% to a 4½ -year low of 5.47%. The participation rate was steady at 65.2%.
• The NSW jobless rate is at 4.6% and that’s a 9-year low. And who doesn’t think wages will start rising soon?
• The minutes from the October 3 Board meeting show policymakers continue to expect stronger economic growth on the back of robust jobs growth. A pick-up in wages growth is needed to exert upward pressure on inflation before the Board is likely to lift interest rates.
• Economy-wide spending continues to grow modestly. In September, the Commonwealth Bank Business Sales Indicator (BSI) lifted by 0.4% in trend terms, after a 0.3% increase in August. But growth in economy-wide spending has slowed since the 0.7% monthly gains recorded in March and April earlier in the year. At a sectoral level, 15 of the 19 industry sectors rose in trend terms in September, a similar result to August. And sales rose in seven of the eight states and territories in the month.
• In the USA, we saw the lowest level in jobless claims since 1973 and strong regional manufacturing conditions index readings for October point to strong underlying economic growth.
• The US Beige Book and the report indicated that the economy grew at a modest to moderate pace in September through early October, which was OK, considering the hurricane effects.
• In China, GDP growth of 6.8% year-on-year was good and so were the slight lifts in growth in retail sales and industrial production but there was a slight fall in investment growth.
• Shares in IBM soared by 8.9% after the computing bellwhether reported third-quarter revenue ahead of expectations and suggested it was now on a growth track, after a record 22 quarters of declining annual revenues.
• Fairfax reported that: “The gains followed the US Senate taking a significant step toward rewriting the tax code with the passage of a budget blueprint that would protect a $1.5 trillion tax cut from a Democratic filibuster.” This is how CNBC explained why the measure excited the stock market: “The Republican-led Senate approved a $4 trillion budget measure Thursday by a 51-49 vote. Passing a budget unlocks reconciliation, which enables the GOP to pass a tax bill with a simple 51-vote majority in the Senate. Using the tool removes the need for winning Democratic support, which would likely sink a GOP tax measure.”
• The Japanese stock market has been up 14 days in a row and that’s a record.

What I didn’t like

• According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totaled 100,200 in September, down 2.4% on a year ago, but these are from record high levels.
• The Kiwis! What were they thinking kicking out a government that has turned them around from being an economic basket case to a real financially fit fiscal performer? A couple of months ago, Reuters reported: “The New Zealand government more than doubled its forecast for a budget surplus in 2016/2017 on a one-off spike in tax revenues, even as it cut its growth calculations for this fiscal year and next. The government raised its budget surplus forecast to NZ$3.706 billion in the year to June because of strong corporate tax revenues, up from a prior forecast of NZ$1.62 billion in its May budget economic and fiscal update.” Bill Clinton said “It’s the economy stupid” but the Kiwis clearly don’t agree.

P.S.

If you want to know why I was laid up in hospital, then Google Weekend Switzer + I could have died but my plan saved me! or take the simple way and click here

The week in review

• If you’ve ignored advice to invest overseas, do you change now? I look at reasons to invest both overseas and at home!
• Being fed up with road tolls shouldn’t be the motivation to invest in the toll road owner but Paul Rickard gives some good reasons to do so.
• While Australian investors have historically not been big fans of bonds, there’ve been notable recent developments in the ETF market that could change that.
• Charlie Aitken looks at what technology trends you should be following today.
• Hungry investors looking to take on some more risk as the market rallies, might consider mid and small cap stocks. Tony Featherstone looks at four that offer reasonable total return.
• Graeme Colley talks about some of the costs associated with your age in setting up an SMSF.
• In the first Buy, Hold, Sell: what the brokers say, Australian manufacturer Ansell was upgraded, while Bank of Queensland and Myer were in the not-so-good books.
• And in the second Buy, Hold, Sell, AGL Energy saw an upgrade while Fisher & Paykel was less happy.
• Paul Rickard responds to a reader’s queries about the CBA’s class action, developing an SMSF tax strategy and Lovisa.
• In this week’s likes and dislikes are a telecommunications company and an employment website.

Top stocks – how they fared

What moved the market?

• The US market reached record highs, smashing through the 23,000 level on the Dow Jones.
• New Zealand’s labour government formed a minority coalition, sending the New Zealand dollar to its lowest point since May.
• Jobs data released Thursday by the Australian Bureau of Statistics showed unemployment ticked lower to 5.5 per cent in September, pushing the AUD higher as traders bet on the odds of a rate rise from the central bank.
• Trump met with Federal Reserve Chairwoman Janet Yellen on Thursday as he neared a decision on who will lead the central bank after her term ends in February. US Treasury yields fell after a report that Trump was said to be leaning toward Jerome Powell.

Calls of the week

• Wayne Swan labelled BHP as Australia’s worst tax dodger.
• And I called out that view as unfair! Rich people and companies do a fair bit to pay their way!
• Paul Rickard named Transurban (ASX: TCL) as one of the stocks that’s should be in your core portfolio
• High profile morning television presenter Lisa Wilkinson made the call to jump ship to Channel 10 after Channel 9 made the call not meet her pay demand.

The week ahead

Australia

• Monday October 23 – CommSec State of the States
• Tuesday October 24 – Weekly consumer sentiment
• Wednesday October 25 – Consumer price index (September quarter)
• Thursday October 26 – Import and export prices (September quarter)
• Thursday October 26 – Speech by Reserve Bank official
• Friday October 27 – Producer prices (September quarter)

Overseas

• Monday October 23 – China house prices (September)
• Tuesday October 24 – “Flash” manufacturing gauges
• Tuesday October 24 – US Richmond Fed index (October)
• Wednesday October 25 – US Durable goods orders (September)
• Wednesday October 25 – US New home sales (September)
• Wednesday October 25 – US FHFA home prices (August)
• Thursday October 26 – US Advance goods trade balance (September)
• Thursday October 26 – US Pending home sales (Sep)
• Friday October 27 – US Economic growth (September quarter)
• Friday October 27 – US Personal consumption deflator

Food for thought

Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
-Warren Buffet

Last week’s TV roundup

• More retail investors are using exchange traded funds to access fixed interest. James Dunn of Switzer Super Report explains why (broadcast Wednesday 18 October, 2017).
• Are Australia’s big miners dodging tax? Wayne Swan thinks so, but not everyone is convinced. Jeremy Thorpe of PWC joins Super TV to give his view (broadcast Thursday 19 October).
• To talk about the latest market news, Raymond Chan of Morgans joins Super TV (broadcast Wednesday 18 October, 2017).
• What do investors need to be mindful of when selecting an ETF? Gemma Dale of NAB joins Super TV to discuss the recent explosion in exchange-traded funds (broadcast on Monday 16 October, 2017).
• Will Turnbull’s national energy guarantee lead to lower power prices? Flow Power’s Matthew van der Linden offers his perspective (broadcast Wednesday 18 October, 2017).
• Where does Australia sit on the world scale in terms of encouraging electric vehicles? Behyad Jafari of Electric Vehicle Council joins Super TV with the latest (broadcast Tuesday 17 October, 2017).

Stocks shorted

Chart of the week

Source: CommSec

Source: CommSec

Recent Switzer Super Reports

• Thursday, 19 October 2017 – Banking on technology
• Monday, 16 October 2017 – Power your portfolio

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.