US stocks were down overnight and for once I can’t blame the President and his infernal tweeting! Nope, we saw a new reason for US stocks to go negative and it’s because JPMorgan reported well (better than expectations) but not well enough!

The experts who do their best working out why Wall Street or the Nasdaq go up or down say a good result was already “priced in”, so reporting companies might have to shoot the lights out to get a big tick from the market.

Citigroup, Wells Fargo and JPMorgan all reported well this week and the market gave them all a positive response but eventually they were given the thumbs down. And while I don’t like this trend, it is a more normal reason for stock prices to give into gravity, rather than the Trump tweeting that has become a determining factor of market direction.

That said, his latest economic adviser – the former CNBC host and former chief economist at Bear Stearns, Larry Kudlow, may well be having a better effect on Donald because lately he has been tweeting things like “missiles are coming” to the likes of Russia but within a day he’s retreating and retweeting. I suspect Larry is reminding him that he needs all the friends he can get ahead of the November mid-term elections and Wall Street is a pretty valuable buddy.

In fact this week, Reuters reported that “US President Donald Trump’s economic adviser Larry Kudlow told CNBC that the president may be open to forming an international coalition to grapple with Chinese trade issues.” Well done, Larry.

Sure, Wall Street wasn’t a fan of Donald before his election win but his good stuff – deregulation and tax cuts, as well as promises of infrastructure spending – have all been good reasons to give him a chance.

This reporting season, which only started this week, could suffer from good but not great show-and-tells from US companies, as there are enormous expectations. FactSet predicts a 17.1% growth in earnings but financials have a 24% benchmark to beat!

But don’t let me spook you too much because Nick Raich, the CEO of The Earnings Scout, told CNBC that the early numbers have actually beat expectations.

The rise so far is 26.8% but it’s very early in the piece.

“In nearly 25 years of compiling earnings data, we have never measured this much growth this late in the cycle,” said Raich. “The Tax Cuts and Jobs Act is a major reason why we are seeing such growth.”

Note, it is early in the reporting season but late in the business cycle. This week’s Switzer Investor Strategy Day was called “How to make money in a mature Bull Market” and that’s exactly what we’re dealing with now. Let me however reassert something I’ve said before: we don’t know how long the euphoric part of a bull market lasts for.

The Yanks are in the euphoric zone but at least Donald’s tweets have served up one plus and that is it has taken down the upward momentum of stock prices that could have hurtled us more quickly towards an excessive exuberance-driven crash.

Despite this weaker Friday, overall US stocks had a positive week, despite the ping pong politics between Donald and China, Syria and Russia. We do live in interesting times. At home, we ended Friday up 0.23% (or 13.6 points) to 5829 and despite the Trump tweeting torture, we advanced 0.7% for the week. And I see US charts specialists think the current stock market patterns, involving 50-day and 200-day moving averages, are all pointing to a positive outlook for US stocks, if the President can just resist his excessively scary tweeting.

This from Shane Oliver, late on Friday, backs up my observations: “While the volatility could go on for a while, some things are worth noting regarding the direction setting of the US share market: the lows reached in February have held after the retest of the last few weeks; the forward PE has fallen to a reasonable 16 times, corporates are accelerating buybacks and M&A and investor sentiment has become very negative and profit growth is very strong, all suggesting scope for a bounce back if the news flow becomes a bit less negative. This would flow through to global shares including the Australian share market.”

Thank you, Shane.

The nice finish to the week was the Reserve Bank’s Financial Stability Review, which gave our financial system a very rosy report card. As Fairfax reported: “The RBA said that the strength of the banks was particularly of note, with capital ratios well above their international peers and continuing to rise.”

And anyone long on stocks has to like this from the RBA: “The Australian financial system remains resilient and its ability to withstand adverse shocks continues to be strengthened… On the domestic front, concerns about riskier types of new housing borrowing have eased.”

Apart from confirming my argument that our economy and financial system is promising looking, it adds weight to my view that when this Royal Commission ends, our banks could be in for a run higher on the stock market.

The RBA also had this to say about our banks: “The resilience and overall financial performance of Australian banks has continued to improve. Profits in the second half of 2017 grew from an already high level, in part because of the increase in lending rates implemented by banks following the regulatory measures. Conditions in local and offshore long-term funding markets have also been generally favourable for banks, although there has been a recent rise in bank bill rates.”

Beaten up quality companies has been an investing theme that has helped my wealth accumulation in the past and even this week, Seven West Media proved this point, with its poaching of the cricket rights, along with Foxtel, helping their share price spike 11.65% on Friday.

What I liked

• The RBA’s take on our financial system.
• The conciliatory speech by Chinese President Xi Jinping, which reduced trade tensions. This guy deserves to be President for life!
• The average credit card balance rose by $94.10 to $3,180.70 in February – the largest increase in 2½ years. This is a good sign for the consumer and 66% of our economic growth is consumer driven.
• The number of loans (commitments) by home owners (owner-occupiers) fell by 0.2% in February – the fifth fall in six months. Loans are down by 0.8% on the year. (I’d prefer a rise but this is what officialdom wanted and the pullback is measured.)
• The value of new housing commitments (owner occupier and investment) rose by 1% in February – the highest level in seven months.
• The NAB exporters’ sales conditions index rose to 20-month highs of +13 points in March, up from -7.8 points in February.
• ANZ’s measure of the ‘time to buy a household item’ increased to +36.8 points last week, up from +34.8 points in the previous week and is another positive sign for the Aussie consumer.
• The Australian Industry Group’s Performance of Construction index rose from 56.0 to 57.2 in March.
• The Government’s Department of Industry, Innovation and Science has forecast that resources and energy export earnings will reach record highs in 2017/18, increasing by $21 billion to $230 billion.
• The US Federal Reserve March meeting minutes noted that “all participants” expected both the US economy to strengthen and inflation to rise “in the coming months”.
• The core CPI in the US rose by 0.2% (forecast: +0.2%) to 2.1% over the year.
• The ECB wisely said it would only gradually phase-out its €30 billion a month bond buying program and start lifting interest rates. Trade wars and a stronger Euro are considered key risks.

What I didn’t like

• The Westpac/Melbourne Institute survey of consumer sentiment index fell by 0.6% to 102.4 points in April, down from 103 points in March and I blame Donald’s tweets. The index is above its long-term average of 101.5 points. A reading above 100 points denotes optimism.
• The NAB business conditions index fell to +14.1 points in March from a downwardly-revised +20 points (third highest reading on record) in February. The business confidence index fell to +7.4 points in March from a downwardly-revised +9.1 points (previously +9.2 points) in February.  These are still good readings but, once again, I think there’s a fair bit of Donald in these numbers, as the stock market can spook business types.
• The number of dwelling starts fell by 5% in the December quarter, dragged lower by an 11.7% fall in apartments. However across Australia, 218,842 homes are being built, down just 2.4% on the 224,314 record set in September quarter 2016.
• The NFIB business optimism index in the US eased from 107.6 to 104.7 in March and I blame Donald for this one too!

P.S. If you’re a Brisbane or Melbourne subscriber coming to our Investor Strategy Day in Brisbane (this Tuesday) or Melbourne (this Wednesday), come up and say ‘hello’. I  look forward to seeing you there.

The Week in Review:

• As I said in our Easter special, I bet Donald Trump will avoid a trade war, so go long the top 20 stocks! I expect they’ll do well if the leader of our free world would just get a grip… Read more about that here.
• Here’s one to remember – if it’s too good to be true, then it probably is. Paul Rickard reminded us that in the current hunt for income, it’s always important to read the fine print.
• In the spirit of Easter, James Dunn offered three fallen angels worth considering. Find out which ones here.
• These three new concept companies by Roger Montgomery might need a little more time, but they could be the next best thing.
• Is the family SMSF – a ‘go’ or ‘no go’ zone? According to Graeme Colley, careful planning is key to ensuring everyone stays friends in a family SMSF.
• This week’s Hot Stocks featured A2 Milk and Flight Center, find out why here.
• In the first Buy, Hold, Sell – What the Brokers say, there were upgrades for ANZ and Infigen Energy during a slow week.
• And in the second edition of Buy, Hold, Sell, energy companies AGL and Origin were also upgraded.
• According to Charlie Aitken, it might be time to take advantage of cheaper prices on global stocks.
• The market might have been savage on industry roll–up disappointments, but that doesn’t mean there isn’t value to be found. Tony Featherstone named 3 consolidators to consider.
• This week’s Professional’s Pick was Oracle Corporation NYSE: ORCL by Peter Wilmighurst of Templeton Global Growth Fund.
• In Question of the Week, we answer a reader’s technical query about the best time to start a pension.
• And in this month’s webinar, Peter Switzer, Paul Rickard and Roger Montgomery got together to share their views on the banks. You can listen to it here.

What moved the market?

• Donald Trump was making waves again on Twitter this week, issuing threats of an attack against Syria and antagonising Russia simultaneously with the missive: “Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!” He later backed down on the threat, noting that an attack could occur “very soon or not so soon at all.”
• Analysts saw a speech by Chinese President Xi Jinping as conciliatory in tone on the rising trade tensions between the US and China. The President promised to open the country’s economy further and lower tariffs on some products.
• An alleged fraud involving a trusted NAB lieutenant and a key contractor worth millions of dollars has left top banking executives reeling after NSW police conducted raids on two business premises and a residence in Sydney in connection.
• Commodity stocks were top performers this week, with BHP finishing every day in the black and closing the week 3.81% higher, while Rio jumped 6.82%.

Calls of the week:

• The party looks to be over for AfterPay, according to Paul Rickard. So, when does the real hangover set in?
• Tony Featherstone named three consolidators to consider, find out which ones!
• Cricket Australia made an apparently very profitable call to jump stations from Nine to Seven Network. It will be the first time in four decades that Nine won’t be broadcasting the sport.

Food for thought:

“Never give up. Today is hard, tomorrow will be worse, but the day after tomorrow will be sunshine.”
– Jack Ma

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.

Charts of the week:

In the first chart, the average credit card balance rose by $94.10 to $3,180.70 in February – the largest increase in 2½ years.

Top 5 most clicked:

• 3 fallen angels – James Dunn
• I’m betting Donald will avoid a trade war so go long the top 20 stocks – Peter Switzer
• US Q1 earnings will end this equity market correction – Charlie Aitken
• Will these stocks be the next big thing? – Roger Montgomery
• If it is too good to be true… – Paul Rickard

Recent Switzer Super Reports:

Thursday 12^th April: The return of the bull market

Monday 9^th April: Gotta have faith

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.