Switzer on Saturday

Positivity for stocks remains relentless

Founder and Publisher of the Switzer Report
Print This Post A A A

With the heat of the Middle East war cooling for the moment, Wall Street has focussed on the tailwinds of lower inflation, no immediate threat of a recession, the improving chances of the US President that big market/business players would prefer (the Don) and, importantly, corporate earnings.

These positive forces have acted like a big wind in the US hurricane season that has driven stock market indexes higher for six weeks on a trot, which defies the history of September, in particular.

Since 1950, September has been the worst performing month of the year for the Dow Jones Industrial Average. This chart of the S&P 500 shows how September is in the red on average if the market is rising or falling ahead of the month, so 2024 is an outlier year.

It’s early days for US reporting season but FactSet says more than 70 S&P 500 companies have reported and 75% have beaten expectations, again showing us that what can go right is outnumbering what can go wrong!

By the way, the recent two weeks of rises isn’t usual for Wall Street running into a US election, with market players more likely to take profit and be cautious before the poll, before buying enthusiastically after the doubt surrounding who will lead the country for another four years has been eradicated.

However, this has created a new pre-poll thinking, as Rob Williams, chief investment strategist at Sage Advisory, suggested to CNBC. “Usually it’s the other way around — the market’s hesitant, and then it does well after the election,” he said. “Now we’re getting the reverse of it and … maybe you get the opposite of what we had — stocks will be strong into the election and then have some volatility fall on the election.”

Williams thinks the better polling figures for the Trump and the Republicans generally, where talk of a clean sweep for the politically more-conservative party was getting media coverage.

Given this prevailing view and if it persists, we could easily see US stocks on the rise ahead of the November 5 election, but if the actual results don’t marry up with reality, that’s when Wall Street could express its disappointment. So that’s the gamble for the next few weeks but there’s always the chance that the Middle East could rattle the market and so could a too strong economic reading, which would reduce interest rate cut expectations, or too slow numbers that predict a recession is possible.
Of course, if the data drops keep telling big market players that they got this positive play for stocks right, and then Trump and the Republicans pull off a clean sweep, this could feed a big, “you ain’t seen nothin’ yet” Santa Claus rally in December.

And while we can’t pull a media release from the ABS that makes it easy for the RBA to even hint that a rate cut is near, which is needed before our stock market really joins the Wall Street party, we still should get an uptick from the tailwinds out of the New York Stock Exchange and the Nasdaq Exchange.

That said, we will also dive if November 5 shocks the market influencers in the Big Apple and in other stock markets of the world.

To the local story, and Friday gave us a negative finish, though like the Yanks, the week was a positive one. The S&P/ASX 200 Index fell 72.7 points (or 0.9%) to 8283 points but for the week we gained 47.80 points (or 0.58%). For the month, we’re up just over 91 points (or 1.11%) and the year-to-date gain is 8.59%. For the S&P 500 in the US, the monthly gain has been 4.4%. For 2024 so far, it’s a 23.67% surge, which shows what we might expect when rate cuts are in sight.

Let’s look at the star stocks and strugglers for the week:

The Strugglers…

  1. Flight Centre lost 18.87% for the week but it was not the only travel business to be KO’d with demand on the slide.
  2. Webjet Travel Group slumped 11.30%.
  3. Corporate Travel gave up 10.29%
  4. Wisetech copped an 8.17% whipping after the founder’s social life became a media frenzy.
  5. APA slipped 6.34%.

The Stars…

  1. AMP was up 12.83% after a positive report on platform activity.
  2. BOQ surged 15.39%, despite a pretty mediocre report.
  3. Evolution Mining continues to glister, up 9.33%.

(See the ‘How Top Stocks Fared’ below)

What I liked

  1. Despite the strong labour market, the CBA economics team is sticking with their December rate cut based on the rate of fall for inflation. I hope they’re right!
  2. US corporate earnings, which is helping Wall Street rise, has lifted our market.
  3. Better-than-feared economic data on Friday for the Chinese economy.
  4. Global disinflation and rate cuts continued over the last week, with the ECB cutting for the third time this year.
  5. This from Shane Oliver on rates: “We think a December cut is still possible if underlying inflation comes in much weaker than expected, but our base case remains for the first cut to come in February.”
  6. US retail sales rose more than expected with real consumer spending on track for a rise of around 3.5% annualised in the September quarter. Forget a US recession anytime soon.
  7. The Middle East threat might be becoming less of a market curve ball.

What I didn’t like

  1. The jobs report (with 64,100 jobs in September and unemployment unchanged at 4.1%) all spells we can forget a rate cut this year unless the CPI is fantastically low on October 30.
  2. Chinese shares fell on disappointment regarding the lack of detail about fiscal stimulus.
  3. China being slow to announce its fiscal stimulus plans, which hasn’t helped BHP and RIO’s share price.

Should we fear a correction?

The key risks are:

  1. Valuations are stretched particularly for US tech stocks.
  2. The risk of recession remains relatively high in the US and Australia.
  3. The expansion of the war in the Middle East threatens to impact oil supplies.
  4. Inflation starts to track up or remains sticky above the 2% the Fed wants.
  5. A US election that spooks Wall Street.

Given, these potential threats, I’d see it as a buying opportunity. And this from Shane Oliver reinforces my view: “On a 6-12 month view, shares are likely to head higher on the back of the success in getting global inflation down, central bank rate cuts (with the RBA getting closer to joining in) and China ramping up policy stimulus. October can often see high levels of share market volatility, but beyond that we are coming into a positive time of the year for shares from a seasonal perspective.”

I rest my case.

Switzer This Week

Switzer Investing TV

  • SwitzerTV Investing: Should you sell your bank stocks to buy BHP? And why Kamala Harris could be a problem for stocks.
  • BOOM DOOM ZOOM!: Peter Switzer & Paul Rickard answer your questions on DTL, APX, TYR & more

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 

 

Quote of the Week

“The still rising trend in unemployment and labour market underutilisation tells us that the jobs market is cooling but itsonly gradual and the relatively low level for both tells us that right now the labour market remains relatively tight,”

– Shane Oliver, AMP chief economist.

 

Chart of the Week

The chart that stops a rate cut on a day a race stops a nation!

 


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.