The production of bright spots for stock market bulls keeps coming out of Wall Street and the USA generally, with the current reporting season and the economic run of data, on top of the Trump tax cuts, all powering market indexes into record territory.
Ahead of the close, the Dow was up 124 points (or 0.47%), while the S&P 500 was up 21 points (or 0.74%), which should be a good lead in for our market on Monday, though you can’t bet on the old “we play follow the leader with Wall Street” cliché so much right now.
Powering US stocks higher were more better-than-expected company reporting stories, with AbbVie, Honeywell, Intel and Rockwell beating Street forecasts.
On the subject of reporting season, CNBC says: “Of the S&P 500 companies that have reported as of Friday morning, 80 percent have reported-better-than-expected earnings while 82 percent have surpassed sales estimates, according to data from Thomson Reuters.”
And for those worried about valuations of companies on US stock markets in the fourth quarter of earnings, which the Yanks are looking at now, the observations of Nick Raich, the CEO of The Earnings Scout, should be noted. “The beat rates and growth rates are as good as we have measured for these 133 companies in any earnings season over the past five years,” he said. “Most importantly, 1Q 2018 EPS estimates [the current quarter] are rising and that is the first time we have seen aggregate S&P 500 EPS estimates going higher in any earnings season in seven years.”
One contrary point about the overall positive US story was the latest economic growth reading out overnight. Growth came in at 2.6%, while the consensus of economists tipped 3%! Clearly, the earnings story is more important than an economic statistic that has a history of jumping around. The four quarters of growth under Donald Trump have been 1.2%, 3.1%, 3.2% and now 2.6%.
Back to US reporting news and that’s the kind of news I want to start emerging from our reporting season, starting in earnest next month. However, we might have to wait until September for some really great company news from a lot of local companies.
And on the home front and being one of the 10 countries in the world with a AAA-credit rating, regrettably, this honour hasn’t helped our stock market. Nor has an economy looking set to grow at 3% plus in 2018 done much lately for stocks. So it’s going to have to get down to reporting season and possibly Donald Trump, if we want to see the overall Aussie stock market shoot higher.
Reporting season clearly could change things, if the profit and outlook stories turn out better than expected. Macquarie’s Martin Lakos says his colleagues are upgrading their expectations for reporting season with confession season, going on right now, not bringing much unexpected bad news. There has been a bit of unexpected good news surfacing, with Resmed a case in point, with sales climbing 13% to $601 million. This figured trumped the $577 million that Wall Street had projected.
I’m punting that reporting season will resuscitate the surge in stocks that we saw from October 4, when the S&P/ASX 200 Index went from 5652.1 to the 6050 mark it is now. That’s a 7% gain, which is good but the S&P 500 has risen 12% over that time. How come? Well, it is explainable in terms of the Trump tax cuts having a much bigger impact on the US economy, compared to its Oz counterpart.
But the Yanks have had the benefit of a falling dollar, while our little bleeder has gone from 75 US cents to 81 US cents since last December. That’s a fair bit of a break on the progress of our companies’ share prices that are currency sensitive.
That’s where Donald might be a help. Speaking at Davos during the week, the President said he wants a stronger greenback and our dollar fell 0.5 cents! Go for it Donnie. However, it might surprise you to know that the President seems to be at odds with his Treasury Secretary Steve Mnuchin, who only yesterday said he “welcomed” a weaker US dollar, as it would be good for “trade and opportunities”. Doh!
Some economists are now tipping that if the greenback keeps slipping, the stimulus effect will force the Fed to raise rates five times, instead of the three or four that most pundits are tipping.
That would definitely push up the greenback as well, so either way, I expect our dollar to dip and give an added impetus to our stock market over the course of 2018.
This is worth noting: “Westpac lifted its Australian dollar forecast for the end of 2018 on Wednesday to US72 cents, from a previous forecast of US70 cents.” (SMH)
Looking at the week of trading, the S&P/ASX 200 index dipped 5 points (or 0.08%) to 6050 on Thursday but over the week we sneaked up around 0.8%, however, it hasn’t been convincing.
What I liked
- This from Fairfax: “Investors in Australian shares pushed the market back to levels last seen at the middle of January on Wednesday, amid ongoing optimism for economic growth at home and overseas.” (At long last the media is seeing it!)
- The Westpac-Melbourne Institute Leading Index showed a stronger reading for December. The six-month annualised growth rate reading was +1.41% in December. Now you might be asking “so what?” The number seems meaningless but you need to know the previous reading was only +0.66% in November. That’s a big jump of 113%!
- The Internet Vacancy Index rose by 0.2% to 83.6 in December in trend terms, after increasing by a revised 0.5% in November (previously reported +0.3%). The index has now risen for 14 consecutive months – the longest period of growth since March 2011. The index has increased by 8.1% over the year to 5½-year highs.
- Economy-wide, spending grew slightly above the decade-average pace in December. The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, rose by 0.4% in trend terms in December, just above the 0.3% decade-average pace.
- At a sector level, 16 of the 19 industry sectors in the BSI rose in trend terms in December, a similar result to November.
- The AiGroup survey points to a possible 400,000 jobs in 2018 and that would follow the 403,000 created in 2017, which was the best job-making story in over 12 years.
- The International Monetary Fund (IMF) raised its forecast for global economic growth to 3.9% in 2018, up by 0.2 percentage points from its previous projection. If realised, it would be the fastest pace of growth in seven years.
- The Markit “flash” manufacturing index for the US rose from 55.1 to 55.5 in January (forecast 55.0) and the services index eased from 53.7 to 53.3 (forecast 54.0).
- The US national activity index rose from +0.11 to +0.27 in December.
- US durable goods orders rose 2.9% in December, according to the Commerce Department. Economists expected an increase of 0.8%.
- The January “flash” composite purchasing managers index for the Eurozone hit the highest level since June 2006.
What I didn’t like
- Labour productivity grew by 1.1% on an hours worked basis and 0.5% on a quality-adjusted worked basis in 2016-17 – the lowest annual growth in five years. (With business investment on the rise, I expect this number to improve over 2018).
- Trumpism concerns, with fears of a trade war after Commerce Secretary Wilbur Ross called China’s technology strategy a “direct threat”.
- Trumpism, with shares in Whirlpool rising 3.2% after US President Trump sharply lifted tariffs on imported washing machines and solar panels.
- The US Senate has agreed to end the Government shutdown, agreeing to fund Government operations, but only for three weeks. Three weeks!
- The 2.6% economic growth number for the US. It wasn’t a bad number but it was less than what economists were expecting.
- The dollar snuck up overnight with that weaker-than-expected US growth number clearly weakening the greenback, sending our dollar to 81.34 US cents!
- One final dislike. I said the credit ratings agency, S&P, says that we will retain our AAA status but they have us on a “negative outlook” because they’re worried about:
- House price rises that could set us up for a collapse but moderation is happening.
- The growth of borrowing and debt but that’s slowing.
- The budget deficit turning into a surplus by 2020-21 but it’s heading in the right direction.
(Our growth story over 2018 should reduce S&P’s concerns.)
For TV junkies
I’m back on Sky News Business on Monday at a new time of 7.30pm, with a new name for the program called Money Talks.
The Week in Review:
- There could be a little bit more steam left in the global Bull Run. I take a look at how you can win with stocks this year [1] – home or away.
- Paul Rickard takes a look at the best rates on cash and term deposits [2].
- The strength in commodities prices caught everybody by surprise. James Dunn [3] takes a look at some companies in the sector to keep an eye on.
- Australian equities may not have been invited to the January international share shindig, but you can still get good global exposure via a local investment, according to Charlie Aitken [4]
- Tony Featherstone looks at 5 stocks to make us proud on Australia Day. [5]
- This week’s Professional’s Pick [6] is Super Retail Group (SUL)
- Rudi Filapek-Vandyck is back and in the first Buy, Hold, Sell – what the brokers say [7], there are upgrades for Flight Centre and Whitehaven Coal, ahead of reporting season.
- In the second Buy, Hold, Sell – what the brokers say [8], brokers were busy this week with plenty of positive activity, including upgrades for Domain Holdings, Treasury Wine Estates and Sydney Airports.
- In this week’s Hot Stocks [9], Flight Centre and Westpac are featured. Find out if they are in the good or back books!
- And Paul Rickard answers all of your Questions of the Week [10] about where to put yout cash ‘ballast’ and robotics investments.
Top Stocks – how they fared
What moved the market?
- IMF Raises Global Growth Expectations Following Tax Reform The International Monetary Fund raised its economic growth forecast for the world in 2018 and 2019 to 3.9% from 3.7% in response to the GOP $1.5 trillion tax reform bill that was passed last year.
- The Aussie dollar remained strong throughout the week and closed on Thursday afternoon at
- Oil prices have set a new 3 year high record after topping $65 a barrel for the first time since December 2014. Oil prices turned higher after the U.S government reported the tenth straight weekly drop in U.S crude stockpiles.
- The US Government shut down ended after a 96 hour period after President Trump signed the bill funding the Government through February 8 and extending funding for the Children’s Health Insurance Program for the next six years.
Calls of the week:
“Tightwad CEO’s need to go to Disneyland” – Peter Switzer
Tony Featherstone calls out 5 stocks that will make us proud on Australia Day.
The Week Ahead:
Australia
- Monday January 29 – State of the States
- Tuesday January 30 – NAB business survey (December)
- Wednesday January 31 – Consumer Price Index (December quarter)
- Wednesday January 31 – Private sector credit (December)
- Thursday February 1 – CoreLogic Home Value index (January)
- Thursday February 1 – Manufacturing purchasing managers (Jan)
- Thursday February 1 – Export & import prices (December quarter)
- Thursday February 1 – Building approvals (December
- Friday February 2 – Producer price indexes (December quarter)
Overseas
- Monday January 29 – US Personal income (December)
- Tuesday January 30 – US Consumer confidence (January)
- Tuesday January 30 – US Case Shiller home prices (November)
- January 30/31 – US Federal Reserve meeting
- Wednesday January 31 – US ADP employment report (December)
- Wednesday January 31 – China Purchasing managers (January)
- Thursday February 1 – US ISM manufacturing (January)
- Thursday February 1 – US Auto sales (January)
- Friday February 2 – US Non-farm payrolls (January)
Food for thought:
“An investment in knowledge pays the best interest” – Benjamin Franklin
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:
Source: CommSec
How much do you spend on petrol each week? According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 0.4 cents to 138.0 cents a litre in the past week. The metropolitan petrol price rose by 0.6 cents to 137.3 cents per litre and the regional price fell by 0.3 cents to 139.3 cents per litre.
Source: CommSec
Top 5 most clicked:
- Peak central bank power is over, so what now? [11] – Charlie Aitken
- 3 new listings to watch [12] – Tony Featherstone
- Buy, Hold, Sell – what the brokers say [13] – Staff reporter
- Winning with stocks this year – home or away [1] – Peter Switzer
- The best rates on cash and term deposits [2] – Paul Rickard
Recent Switzer Reports:
Monday 22nd January – The action is everywhere [14]
Thursday 25th January – Aussie, Aussie, Aussie [15]
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.