Switzer on Saturday

Stock players are becoming less tech preoccupied

Founder and Publisher of the Switzer Report
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Every morning when the New York Stock Exchange and the Nasdaq on Times Square are trading, I wake up and go straight to the key indexes. Even before the US voted for a new President called Donald Trump, I was expecting to see green on the screen but awaiting an eventual run of down days. The chart below shows we’ve had them, but they’ve been short-lived.

S&P 500 (12 months)

You can see there were short-term dumpings of stocks in April, July, August, October and December. However, the drivers or tailwinds that keep stocks going higher have persisted and even grown over the past 12 months, despite many experts thinking a sell-off is way overdue.

The sustained run of improving economic data, rate cuts, rising company earnings, the potential of artificial intelligence (AI), an improving China, a Middle East apparent solution, the possibility that the Ukraine war could soon end and the promises of Donald Trump about tax and deregulation have all explained stock market positivity.

And this week it was another up trading experience for Wall Street, with a rise close to 1.5%, which means the S&P 500 index is up 25.77% for the past 12 months and up around 70% since 7 October 2022, which coincided with better inflation news and the belief rate cuts were coming. They actually didn’t come until July 2023! But when they came, they were a terrific tail wind, bolstered by AI expectations.

While on months of the year, for those worrying that stock price rises look challenged in 2025, remember the old rule of thumb that says, “as January goes, so goes the rest of the year”. Like me, AMP’s Shane Oliver looked at this market omen recently and pointed out that a strong finish to the month of January provides a “reasonably consistent but not perfect guide” to the rest of the year.

“Since 1980, 85 per cent of positive Januarys have gone on to a positive year in the US, and in Australia it’s 76 per cent,” Oliver reminded us yesterday. For the record and before the close, CNBC reported that “…the three major US market averages are on pace for monthly gains, with the S&P 500 up 3.9% and the Nasdaq on pace for a 3.1% advance. The Dow outperformed in the period, on track for a 5.5% jump.”

I like that Dow outperformance because our market has characteristics more like the 30-stock index that the world has tracked for over a century. If you add that to the better-than-expected CPI numbers here this week, which has led to a belief that a rate cut comes in February, it augurs well for our S&P/ASX 200 index that’s overdue to play a bit of a catch up with US stocks.

Our index is up only 12.44% for the past 12 months, which is less than half the rise in the S&P 500. Helping US stocks overnight has been a good profit report from Apple and a week that has been good for corporate earnings, especially from some of the Magnificent Seven companies. The fact that the Nasdaq looks to be up nearly 3% for the week (despite a huge dumping on Monday, as DeepSeek snuck into the trading world from China which took 13.2% off Nvidia’s share price over the week) shows that the US stocks rise is broadening into other companies, which is a good sign for 2025.

That said, we can’t rule out a decent sell-off as the US President is a curve ball thrower. On Saturday, US time, he’ll be hurling 25% tariffs on Canada and Mexico, alongside a 10% duty on China, which hasn’t hurt US stocks so far. Helping to a small degree was the Fed’s preferred inflation measure, the personal consumption expenditures price index or PCE, which rose 0.3% for December and 2.6% for the year. But the core rise was 0.2%, which the market wasn’t worried about.

These words from Chicago Fed President Austan Goolsbee were promising for US inflation. He told CNBC that the PCE data was “even a little better than expected.” He added: “I don’t make too much of any one month, but you know, I’ve been saying that I felt like we’re on path to 2%. I have comfort, I won’t say overconfidence, but I have comfort that we’re on that path.”

Add all the above (except the Trump tariffs kick-off) to our expected rate cuts and there are good reasons to believe in stocks for the time being.

To the local story and our share market hit record highs on Friday, helped by the expectation of a February interest rate cut following better-than-expected CPI data earlier this week.

The S&P/ASX 200 closed 38.6 points (or 0.5%) higher to 8532.3 points on Friday and up 126.3 points (or 1.5%) for the week. Let’s look at some of the stars and strugglers over the week.

The Stars…

  1. Xero up 6% to $183.27.
  2. Emerald Resources surged 17.5% to $4.33.
  3. Premier Investments continues its surge, up 13.64% to $23.88.
  4. Karoon Energy spiked 13.67% higher to $1.58.
  5. Sigma Healthcare was bright, up 9.13% to $2.87.
  6. Aristocrat Leisure remains a good gamble, up 11.38% to $75.57.

The Strugglers…

  1. Next DC lost 7.82% to $14.85 because of the DeepSeek shock.
  2. Magellan looks lost, off 10.97% to $10.51.
  3. IGO was down 8.36% to $4.93 on nickel negativity.
  4. Nanosonics gave up 6.76% to $3.45.
  5. Origin was hit, off 8.17% to $10.45.
  6. Goodman Group lost 6.49% to $36.45 because of DeepSeek and the fact GMG is getting into data centres.

What I liked

  1. Those inflation numbers: headline 0.2% for the quarter and 2.4% for the year; the trimmed mean CPI measure increasing by 0.5% in the fourth quarter – the smallest increase since the March quarter 2021.
  2. Shane Oliver’s take on the CPI result: “The fall in inflation likely clears the way for a February RBA rate cut.”
  3. Services sector inflation rising 0.7% in the December quarter.
  4. The DeepSeek AI could be good for a quicker-than -expected Chinese economic recovery.
  5. US economic growth slowed to 2.3% in the December quarter, down from 3.1% in the previous three months. This hoses down boom and inflation fears and might give the Yanks more rate cuts than are currently expected.
  6. The EU rate cut helps the global recovery of 2025 and is good for stocks.
  7. This call from AMP’s Shane Oliver: “For the ASX 200, our year-end target is 8800.” Adding in dividends and franking, it looks like a 10% total return call, and Shane Oliver is often conservative in his full year guesses!

What I didn’t like

1.. The Trump tariffs/duties that start today for Mexico, Canada and China.

  1. The Yanks thinking that they would have AI chips to themselves, which DeepSeek changed this week.

Bring on the broadening…

While it’s sensible to believe that a sell-off of stocks is likely in 2025, it’s just as easy to suspect that the share market can have a good year again, with rate cuts highly likely here and the broadening of the rally to other stocks. In the US, big tech will have less friends and other companies can take market indexes higher, while here I expect our banks and some other top 20 stocks will fall or rise slowly, while miners and many other mid-cap and smaller companies will gain from lower interest rates and the rotation of investors out of the stocks that have worked for two years into the ones that could win going forward.

The broadening of the stock market rally is a ripper!

Switzer This Week

Switzer Investing TV

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Switzer Report

Switzer Daily

 

The Week Ahead

 

Top Stocks — how they fared

 

Most Shorted Stocks

DATA from Monday 20th – Friday 24th January – due to long weekend Monday 27th January

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 

 

Observation of the Week

CBA Economics team: “We retain our call that we have held since late October last year that the RBA will cut the cash rate by 25bp at the February Board meeting (decision due 18/2). Our base case looks for 100bp of easing over 2025 that would take the cash rate to 3.35%. This is a touch below the RBA’s estimate of the nominal neutral cash rate, which is centred on a point estimate of 3.5%. We have pencilled in one 25bp rate cut per quarter over 2025.”

 

Chart of the Week

Inflation conquered! Rate cut should show up in February!

 

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.