Switzer on Saturday

Stocks are on sale but not at Black Friday prices!

Founder and Publisher of the Switzer Report
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Black Friday in the US is not only the home of shops that open at 12am to give price discounts that encourage Yanks to shop until they drop, but this also ‘special’ day brings with it a shortened trading day. Consistent with this particular day in the American calendar, the Trump ‘thanksgiving’ that Wall Street has been celebrating since November 6 continued, though unlike retail, prices were rising not falling.

On a shortened trading day, the Dow Jones Industrial Average was up 188.59 points (or 0.42%) to finish at a record high close of 44,910.65, while the S&P 500 rose by 0.56% to an all-time high close of 6302.28. Meanwhile, the Nasdaq broke the recent trend of underperforming compared to the other indexes to add 0.83%, but the tech-heavy market indicator has been higher previously.

It was fitting that November should end on a winning note with the Dow up 7.5% for the month. Along with the S&P 500, it registered the best monthly performances for these respective indexes for 2024.

We benefitted too, with our S&P/ASX 200 index spiking a nice 3.38%. This has primarily come from the US market tailwind, as most of our drivers are still overdue in arriving, including lower interest rates and an overwhelmingly credible stimulus for the Chinese economy from Beijing.

Thankfully, this flabbergasting financial festival that the Trump win has delivered has even rolled into December, with our SPI futures telling us to expect a 30-point open for our share market on Monday.

This from Ross Mayfield, investment strategist at Baird Private Wealth Management in the US on CNBC, sums up what has happened and what’s likely to happen: “The prevailing takeaway from November, to me, is that what was true before the election has remained true after the election. And as we head into December, it’s really hard to fade this bull market here, with all the things going right, the election in the rearview and a seasonal tailwind that still has some room to run”.

Clearly, a left-field Trump revelation could rattle overseas markets. For example, his stance on tariffs could surprise the stock market, but to date the upcoming President’s stated commitment to lower taxes, such as a corporate tax rate of 15% and reduced regulation keeps exciting the market.

We should also not forget the future promise of Artificial Intelligence that was even pointed to by CBA’s boss Matt Comyn this week as being important to the bank’s future profitability and performance.

That said, apart from a Trump surprise ‘twister’ that could threaten global growth, a market pullback could be created by some higher inflation readings in the US and Europe that could change, or more accurately, slow down rate cut expectations.

For 2025, along with the ongoing monitoring of what a US President Trump could serve up, we will remain on data drop watch, hoping the belief in a US Goldilocks recovery of lower inflation and good economic growth remains the believable market story.

On balance, I think 2025 will bring more volatility. Given the huge gains over the past two years, the US market might be lucky to rise 10%. But on balance the scene looks set for another good year for investors.

This from AMP’s Shane Oliver is a neat summary of why remaining positive on stocks makes sense: “Easing inflation pressures, central banks cutting rates, China ramping up policy stimulus and prospects for stronger growth in 2025-26 should make for reasonable investment returns over the next 6-12 months. However, with a still high risk of recession, poor valuations and significant geopolitical risks particularly around the Middle East and Trump’s policies, the next 12 months are likely to be more constrained and rougher than the last year has been.”

To the local story, and despite our inability to get core inflation down to the 2-3% band that the Reserve Bank demands (which is now making economists predict our first rate cut might not happen until May), our S&P/ASX 200 hit two new record highs this week.

Despite these milestones, the index actually fell

13.3 points (or 0.16%) for the week. You can blame an underwhelming October CPI report and Trump tariff jive talking.

Here were the stars and strugglers whose share prices moved up or down 5% or more over the week:

The Stars…

  1. Webjet flew higher by 18.39% to $5.15.
  2. Life 360 came back to life, again, rising 19.4% to $25.30.
  3. Promedicus boomed again, up 12.38% to $251.89.
  4. Polynovo surged 9.18% to $2.20.
  5. Lovisa sneaked up 5.51% to $29.41.
  6. Megaport rose 6.77% to $7.89.
  7. Lendlease was up 6.15% to $7.16.
  8. Telix Pharmaceuticals spiked 7.73% to $24.74.

And the Strugglers…

  1. Boss Energy dropped 11.73% to $2.71.
  2. Karoon Energy lost 5% to $1.33.
  3. Star Entertainment slipped 5.8% to $0.20.
  4. Nanosonics gave up 6.59% to $3.26.
  5. Bellevue Gold dropped 7.25% to $1.28.
  6. Liontown Resources fell 6.05% to $0.73.
  7. Paladin Energy depowered 8.21% to $7.60.

What I liked

  1. The headline inflation rate at 2.1%.
  2. In the US, September quarter GDP growth was confirmed at a 2.8% annualised pace, reflecting solid data to date.
  3. In Australia, September quarter construction activity rose more than expected driven by engineering and home building. This is good for avoiding a recession but not great for rate cuts.
  4. Business investment rose in line with expectations. Capex rose 1.1% quarter-on-quarter in the September quarter, with mining investment down and non-mining up. Business investment plans for this financial year compared to those made a year ago, imply nominal capex growth of just 4.3%, which is down from an expectation of 7.5% year-on-year in the June quarter and 12.3% year-on-year in the March quarter and implies weak growth after inflation.

What I didn’t like

  1. The underlying inflation rate for the month of October saw it rise from 3.2% to 3.5%, when we needed to see a fall to bring rate cuts closer.
  2. Services inflation was up to 4.8% year-on-year.
  3. This from AMP’s Shane Oliver: “The RBA appears to be in no hurry to ease so we have shifted our expectation for the first rate cut from February to May.”
  4. Another elevated US inflation reading. Consistent with the October CPI, core private final consumption inflation showed a further tick up to 2.8% year-on-year from 2.7% year-on-year, with 3-month and 6-month annualised inflation showing that progress in getting inflation down may have stalled again. (AMP)
  5. Eurozone economic confidence rose slightly but remained weak in November, consistent with weak PMIswith a further fall in the German IFO business conditions index highlighting the weakness in the German economy.

One company not spooked by Trump tariffs.

Auto giants such as Mercedes, Volkswagen and Fiat aren’t happy about potential tariffs on their cars sold into the US and their share prices have reflected their recent and future challenges.

However, Ferrari’s management is less fazed. Unlike other carmakers that might react to tariffs by producing in the US, this ‘Italian stallion’ is not thinking like other big car players.

“For Ferrari, it is the one exception where whatever the tariff is, they are not going to start producing in the U.S. Everything happens in Maranello, Italy,” Rella Suskin, equity analyst at Morningstar, told CNBC via a video call.

“The thing with Ferrari is, if it is a 10%, 20% or 30% [tariff] then they can probably easily pass that on in price to consumers, just given the customer they are targeting and how expensive the cars are already.”

I can recall when the US fund manager WCM listed in Australia with WQG and WCMQ, I interviewed Paul Black, the chief investment officer, on my Sky Business TV program.

He said the investment theme of the fund was to invest in the best-of-breed businesses with growing moats. When I asked him what his latest addition was to the fund, he surprised me when he said: “Ferrari!” He then explained that he loved a business that customers will wait two years to get their beloved purchase and the queue for customers was so long!

Paul and his team’s current biggest holding, which they bought into some years ago, is Novo Nordisk, which produces the Ozempic diet drug.

I don’t think Trump tariffs on this fat-killer will hurt sales either!

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Quote of the Week

Michelle Marquardt, ABS head of prices statistics, said: “Annual inflation was steady at 2.1 per cent in October and remains the lowest annual inflation since July 2021.”

She added: “The falls in electricity and fuel had a significant impact on the annual CPI measure this month. When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding volatile items and holiday travel, and the Trimmed mean can provide additional insights into how inflation is trending”.

She then looked at the all-important underlying inflation rate.

“Annual trimmed mean inflation was 3.5 per cent, up from 3.2 per cent in the previous month and similar to where it was in August. The CPI excluding volatile items and holiday travel was 2.4 per cent in the 12 months to October, down from 2.7 per cent in September,” Ms Marquardt said.

 

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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.