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Earnings, the Economy and Ebola

What we’re living through right now is a shootout between what really drives stock markets and what can often distract investors, albeit temporarily. Yep, it’s all about US earnings for the Yanks, especially when we know the American economic recovery is for real. And it seems, on nearly a daily basis, geopolitical or medical concerns compete for investor preoccupation but the former is way outpointing the latter.

On the earnings front, Caterpillar and 3M beat expectations and raised full-year outlooks. These two companies are seen as bellwether businesses, especially Caterpillar, as it’s leveraged to the world’s willingness to invest in infrastructure and construction.

But it didn’t end there, with Microsoft and Proctor & Gamble again letting the good earnings roll. Although Amazon was the one standout disappointment, all up US earnings are helping to boost investor confidence.

Meanwhile, US economic numbers reinforce the view that we can believe in the Yanks’ economic recovery. This is what showed up over the week:

However, it wasn’t purely US news pushing up my confidence.

What I liked

What I didn’t like

One more thing

In case you were wondering, we’ve just gone through our best week for stocks since February and we’ve been up eight out of the last nine sessions.

The next question I’ll be driven by next week is: have we made the bottom for the market for this year and are we rolling into an end of year Santa Claus rally? CMC Market’s Michael McCarthy says ‘yes’ and argues that it’s not just fundamental analysis but also the technical stuff is pointing to a happy ending for stock players as 2014 slides into the silly season.

Let’s hope he’s right but we’ll be testing his proposition in coming weeks.

Watch for the week

The S&P 500 finished at 1964. If it can crack 1966 it could be really good for stocks to head higher. Can’t wait for Tuesday next week when the Yanks complete Monday trade.

Top stocks – how they fared

The week in review (click on blue text to read more)

What moved the market

The week ahead

Australia

Monday October 27 – Speech by Reserve Bank official
Thursday October 30 – New home sales (September)
Thursday October 30 – Export & import prices (September Qtr.)
Thursday October 30 – National Accounts 2013/14
Friday October 31 – Producer prices (September quarter)
Friday October 31 – Private sector credit (September)

Overseas

Monday October 27 -US Pending home sales (September)
Tuesday October 28 – US Consumer confidence (October)
Tuesday October 28 – US Durable goods orders (September)
Tuesday October 28 – US Case Shiller home prices (August)
Wednesday October 29 – US Federal Reserve meeting
Thursday October 30 – US Economic growth (Sept quarter)
Friday October 31 – US Personal income (September)
Friday October 31 – US Consumer sentiment (October)

At home the week kicks off with a speech by the RBA’s Head of Financial Stability, Luci Ellis, at the Australian Housing and Urban Research Institute Seminar. Things pick up later in the week with import and export prices for the September quarter along with detailed data from the ABS’ 2013/14 National Accounts, released on Thursday. We also find out about business inflation with Producer Prices Data, and lending with Private Sector Credit data, on Friday.

Overseas, the highlight will be the Federal Reserve Open Market Committee (FOMC) meeting on Tuesday and Wednesday, where they will discuss current policy settings. The big question will be – will they or won’t they announce the end of Quantitative Easing (QE)?  We will find out at 2.00pm US ET on Wednesday – 5.00am our time (ESST) on Thursday.

Calls of the week (click on blue text to read more)

Food for thought

“The punters know that the horse named morality rarely gets past the post, whereas the nag named self-interest always runs a good race.”

– Former Prime Minister of Australia – Gough Whitlam (1916-2014).

Last week’s TV roundup

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.  We will find out at 2.00pm US ET on Wednesday – 5.00am our time (EST) on Thursday.

Source: ASIC

My Favourite charts

Analysts getting more bullish

Source: Woodhall Investment Research

On my show this week [22], Ron Bewley from Woodhall Investment Research revealed analysts are upgrading their capital gains forecasts for the ASX200 – and it looks like it’s reliably trending up! In June, analysts were only expecting average sharemarket gains of 6% in the next 12 months – now they are up to almost 10%!

State of the States – NSW edges ahead of WA

After analysing eight key economic indicators for Australia’s states and territories, CommSec’s quarterly State of the States report declared a new winner for the first time since July 2011, with NSW moving from third to first! One of the indicators, dwelling starts, is featured in the above chart.

Top five clicked on stories:

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Have a great weekend,

Peter Switzer
Founder and publisher of the Switzer Super Report

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.