[table “233” not found /]
The local stock market was up 21 points on Friday but down 11 points for the week. However, the market isn’t really running out of Trump steam. By the way, the Nasdaq hit an all-time high overnight but then pulled back, which also tells you we’re in a ‘taking profit’ phase for many who have done well since the Trump victory. The Dow alone has picked up over 1000 points from the Friday close before the election and now!
“I think we’re at a point now where we are transitioning from the reaction to the election to a reaction to the current fundamentals, which is important,” said Art Hogan, chief market strategist at Wunderlich Securities on CNBC.
It’s simply that we’ve got a lot more than we expected. And the fact that Donald T has had such an effect has taken the US dollar higher, which has trimmed the share price spikes of the likes of BHP, Rio and Fortescue. And let’s not talk gold!
For the record, over the week, BHP lost 3.4%, Rio Tinto 3.7%, while Fortescue was down 7.8% and South32 slumped 8.5%.
Want proof of the greenback’s climb, which always hits commodity prices? Well, just check out the Oz dollar at 73.87 US cents. Who said Trump has lost his market influence? With Hillary, we’d still be closer to 76 US cents.
For those worrying about a stronger dollar hurting Wall Street, which could hit other markets, this history lesson from AMP’s Shane Oliver is timely: “The last two big cyclical surges in the $US in 1981-85 and 1997-2001 were actually good for US shares, with the S&P 500 index up 50% and 80% respectively.”
We’re more an exporting country so a lower dollar is better for our growth prospects. Japan, which needs all the help it can get, should get a shot in the arm from a stronger US dollar.
Of course, Janet Yellen had a bit to do with this dollar drama but Trumpists would remind us that many of us expected that the prospect of a President Trump would lead to a 5-10% market slump, which would have left the Fed on hold and not interested in raising rates in December.
Well, now that Mr Trump is seen as the growth machine and the deflation fighter, the Fed is poised to deliver the overdue rate rise.
This, from Yellen, screams that a rate rise is pretty well baked in: “The evidence we’ve seen since we met in November is consistent with our expectation of strengthening growth and an improving labour market,” she said. “I do think the economy is making very good progress towards our goals.”
The trend I liked this week, which I’ve been predicting, was that the yield chasers couldn’t ignore the likes of Telstra, with yields over 9%! The telco added 4.5% for the week after the company talked about $1 billion worth of cost savings and the possibility of buybacks. It finished at $4.93 for the week, after hitting a $4.70 low over the course of the week.
Not surprisingly, Transurban rose 3.6% and the US-exposed Westfield put on 6.2%. Frank would have loved that!
The banks had an OK week but hedge fund manager, Marcel Von Pfyffer of Arminius Capital thinks there’s more to come for our financials as growth, less regulation and higher interest rates in the US underpin higher share prices. And there will be a bit of follow-the-leader stuff here, as often happens.
If the growth-chasers are given news between now and New Year that keeps them buying cyclical/growth stocks and the yield chasers remain vigilant and buy the likes of Telstra, REITS and Sydney Airport when their share prices go too low, then index players might see a decent finish for the year.
I do have a number of good reputation market callers with 5700 beside their names, which would be a 6.3% gain for the S&P/ASX 200 index by year’s end, which isn’t too unbelievable. And it could be more if the news flow isn’t too negative.
The US gets a lot of important economic data this week and OPEC meets on November 30 in Vienna. And then the Italians have their referendum on December 4. You have to hope we don’t see headlines about Italy, the EU and Itexit! Brexit and Grexit were market worriers and Itexit would be a curve ball that I don’t want to think about.
Long range nervous Nellies are stressing about the French election on May 7, where a female Trump figure called Marine Le Pen has the potential to spook stock markets as she is anti-EU, anti-immigration and is tapping into the French people’s concerns about terrorism on home soil.
The wall of worry will have plenty of stories to keep us guessing where stocks are heading!
What I liked
- All-time high territory for US market indexes.
- The market bet that a US rate rise in December is a 98% chance of happening! It was 80% before the election, so the new Trump-view is worth 18% more optimism to the market! Who would have guessed that?
- Janet Yellen telling Donald she won’t be retiring before her term ends in January 2018. Good on you girl!
- The US consumer price index (CPI) rose by 0.4% in October, in line with expectations.
- New claims for unemployment insurance in the US fell by 9,000 in the latest week to a 43-year low of 235,000.
- US retail sales rose by 0.8% in October (forecast 0.6%).
- Japanese GDP growth surprised on the upside for the September quarter, up 2.2%, which is higher than the average 1% they’ve produced for 20 years!
- Chinese economic activity indicators were mixed in October with slower retail sales but the 10% reading is still good. Industrial production at 6.1% is steady. China is not spooking anyone, apart from those who always want to be spooked by China.
- The tone of RBA Governor, Dr Phil Lowe, which was summarized as cautiously optimistic about growth – here and overseas – and inflation, which also suggests we don’t need interest rate cuts.
- Shane Oliver agrees with me that the bond market reaction to Mr Trump was excessive and it looks like the smarties are agreeing with me, as bond prices rose and yields fell later in the week. Donald is not President yet and they had inflation and interest rates going through the roof! He will help inflation and rates go higher but give him a chance to get a bit of growth going first.
- Unemployment actually hit a three and a half year low, though it has been reported as an unchanged or flat result of 5.6%. However, for news, the Statistician rounds up the number to one decimal point. The figure was actually 5.58% and was the best since February 2013!
- Also, the worrying trend that has grabbed headlines over the past few months, of part-time jobs rising and full-time jobs disappearing, was reversed. The latter was up 41,500 in October while part-time work dropped 31,700.
- The Bureau of Statistics (ABS) reported that new vehicle sales fell by 2.4% in October. Over the year to October, 1,178,688 vehicles were sold, just below September’s record high.
- The ANZ/Roy Morgan consumer confidence rating rose by 0.3% to a 7-week high of 118.2 in the week to November 13. Confidence remains above the average of 113.0 since 2014.
What I didn’t like
- Chinese iron ore futures down nearly 16% over the week but it was after hitting a 33-month high on Monday. Looks more like speculation rather than a new view on iron ore.
- Emerging market shares were under pressure from the rising greenback.
- Negative news on the December 4 Italian election that could give rise to Itexit-talk, which would be more market scary than Grexit or Brexit.
- FN Arena’s Rudi Filapek Vandyke has a chart that he showed on my show that says sellers are outnumbering buyers and is an omen that stocks could be under pressure in the near term. The sell off can last as short as a quarter but I’m not certain of its reliability over a longer time period.
- US industrial production was flat in October, although factory output lifted by 0.2%.
- Our wage price index rose by 0.4% in the September quarter after a 0.5% rise in the June quarter. Annual wages growth stood at a record low of 1.9%.
Be thankful
For Americans, it’s Thanksgiving on Thursday and the Black Friday sales (when retailers get into the black) start. I’ve been in New York several times on this day and it’s a shop-till-you-drop experience. And views on the US economy and what Donald Trump has done for consumer sentiment will be a big story to watch next week.
Top stocks – how they fared
[table “232” not found /]The week in review
- I explored what the economy and stocks might look like under a Trump presidency [1].
- Speaking of Trump (who isn’t?), James Dunn revealed the stocks that could benefit [2] from his policy mix.
- Paul Rickard ranked the big four banks from one to four. Find out which bank [3] claimed the top spot.
- This week, the brokers liked Woolworths and Westfield [4].
- In our second broker report, Metcash copped a downgrade [5].
- Barrie Dunstan explained why investors might need a little patience as the market comes to grips with The Donald [6].
- Our Super Stock Selectors liked ASX and Sydney Airport. Find out why [7].
- Tony Featherstone said it might be time for some profit-taking in the resources space after its stellar run this year [8].
- Charlie Aitken said ‘cross asset class volatility’ will continue to rise, but there’s also opportunity if you know where to look [9].
- Graeme Colley explained why it’s important to understand the rule changes around the transition to retirement income stream (TRIS). Don’t leave it to the last minute! [10]
What moved the market?
- A pull back in the Donald Trump rally as investors pondered the uncertainty of his policies.
- Janet Yellen’s speech, which said US interest rates were likely to rise soon.
- Renewed hopes that OPEC would secure a plan to tackle the global oil supply glut.
Calls of the week
- Big W’s CEO, Sally Macdonald, made a surprise resignation after less than one year in the role.
- Harvey Norman chairman Gerry Harvey delivered this message to short-sellers who are thinking of targeting his company: “piss off”!
- Rio Tinto sacked two executives linked to a payment scandal in West Africa.
- And in the Switzer Super Report, Paul Rickard gave CBA the top spot in his big four ranking [3].
The week ahead
Australia
- Monday November 21 – CommBank Business Sales (October)
- Tuesday November 22 – Weekly consumer sentiment
- Tuesday November 22 – Speech by Reserve Bank official
- Wednesday November 23 – Construction work done (September quarter)
- Wednesday November 23 – Skilled vacancies (October)
- Thursday November 24 – Detailed job market data (October)
Overseas
- Tuesday November 22 – US Existing home sales (October)
- Tuesday November 22 – US Richmond Federal Reserve (November)
- Wednesday November 23 – US Federal Reserve minutes
- Wednesday November 23 – US Durable goods orders (October)
- Wednesday November 23 – US Monthly home prices (September)
- Wednesday November 23 – US New home sales (October)
- Wednesday November 23 – US, Japan, Europe “Flash” manufacturing
- Wednesday November 23 – US Consumer sentiment (November)
- Friday November 25 – US “Advance” trade (October)
Food for thought
“Who you are is who you attract. If you want to attract better people, become the kind of person you desire to attract.” – John Maxwell
Last week’s TV roundup
- In this week’s Super Session, Paul Rickard and I discuss the Trump effect [11] on the stock market and the economy.
- For his investment strategy in a post-Donald world, George Boubouras [12] of Contango Asset Management joins the show.
- Simon Conn [13] of Investors Mutual explains whether the Trump era will have an impact on the Aussie economy and stocks.
- Pete Calleja of PricewaterhouseCoopers explains what’s in Donald Trump’s tax treasure chest, and how it might impact the US and Australia [14].
- And Raymond Chan [15] of Morgans reveals the stocks on his watch list right now.
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 also shows how this has changed compared to the week before.
This week, Healthscope had the highest proportion of its ordinary shares sold short, increasing 1.58 percentage points to 8.15%.
Source: ASIC
Chart of the week
The bull market in bonds: Is it over?
Government bond yields have spiked over recent months, and were given a further push by Donald Trump’s election. Since yields are inversely related to prices, the 35-year rally in bonds is showing signs of ending. However, Shane Oliver of AMP Capital says any rise in yields is likely to be a gradual process – so he’s not too bearish on the world of bonds.
Top five most clicked stories
- Paul Rickard: Which bank? [3]
- Peter Switzer: Trump gets stocks thumbs up and Buffett agrees [1]
- Tony Featherstone: Resources sector – 2016’s Factor X? [8]
- James Dunn: Stocks that benefit from Trump victory [2]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [4]
Recent Switzer Super Reports
- Thursday 17 November 2016: Factor X [16]
- Monday 14 November 2016: What just happened? [17]
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.