The Trump-o-party keeps revelling, with the Dow having an early close because Wall Street had to join the Black Friday sales that follow Thanksgiving. The key index was up 68.96 points when I bounded out of bed to a record close of 19,152.14. But check this out: 49% of US investors are now bullish on stocks.
This contrasts with three weeks ago when the American Association of Individual Investors told us the number was 23%. And a few weeks before that, when this reading hit a significant low, I did make the case that this can be a pretty good contrarian signal that things were going to change for the positive.
In my wildest dreams I didn’t expect it would be a Donald Trump creation (as you know) but as someone who had a bullish view on stocks, thanks to current and forecasted economic and earnings numbers, I’m happy to get what I want any way it comes.
My colleague, Charlie Aitken, thinks there’s a lot of China-spending and demand in this market optimism, which has been helping commodities go higher, since March actually, but Donald has thrown a big shovel of coal on the fire!
The Russell 2000 closed at an all-time high and now has put in a 15-day winning streak! It joins the Dow, the S&P 500 and the Nasdaq in record high territory. So is it any wonder why our S&P/ASX 200 index hit a three-month high, confidently cracking the 5500 level on Friday?
We ended at 5508 and put on 2.8% for the week. So Donald and/or China has given our market a 10% turbo charge. And I won’t crow too loud but I haven’t heard from ‘The Dude’, whose last email to me, pre-election, said “You can smell the fear” in the market. Clearly, Donald has brought a pretty powerful can of Air-o-zone!
Can it continue? I think the uptrend for stocks is in place but I expect to see some volatility, possibly caused by obstacles such as the OPEC meeting next week or the December 4 Italian referendum or the December 16 expected interest rate hike in the US. However, I’m also expecting this Trump rally or ‘certainty’ rally, which replaced the uncertainty sell off pre-election, will be followed by a Santa Claus rally. Ironically, Donald Trump actually is built like Santa Claus!
Since 1950, after every election, the US stock market doubles the usual performance from the beginning week in November to the end of December.
Those wondering why our market’s response, while good, still looks subdued compared to Wall Street should look at the following reasons. The rising greenback has slowed up the commodity price rise and, of course, the Trump optimism has been butchering the gold price and gold stocks. Need proof? Well, look at Newcrest that lost 5.8% over the week.
Back to the rally and the charts tell us technically we should go higher but the roadblocks I listed above could give technical traders a reality biting, though I hope not.
A ‘no’ vote on the Italian referendum could create worries about an Italy-exit from the EU and that could spook stock markets, as Grexit and Brexit did. Ahead of the vote, profit-takers could easily do what they do – take profit.
This would come as concerns about Eurozone growth have resurfaced. I’m heartened by one thing and that’s the fact that the polls say the Italians will vote ‘no’ and we know how good the pollsters are nowadays!
Apart from the OPEC meeting in Vienna, next week the US gets a truckload of economic data culminating in the latest jobs numbers, which could help or hinder the rally. On the local front, we get a lot of housing data, the latest manufacturing number, retail trade and the really important business investment figure. This has been a disappointing laggard for some time but recent signs have been miles better, so I hope we see a nice trend developing to the upside. If it’s surprisingly good, it could give our stock market a nice boost.
What I liked
- The Trump rally and seeing us above 5500!
- US durable goods orders rose by 4.8% in October (forecast +1.5%).
- Fed minutes say policymakers generally agreed that the case for a rate hike continued to strengthen.
- The November reading for the Markit non-manufacturing index (services sector) came in at 54.7, marginally lower than the October read of 54.8 but it’s still a good number. And the rise in the new orders reading was the fastest in 12 months.
- US existing home sales rose by 2% in October to 5.49 million annual units – the highest level in more than nine years.
- The Richmond Fed composite index rose from -4 to +4 in November, driven by a healthy lift in new orders.
- The average room occupancy of hotels & motels across Australia hit a record (18-year) high of 66.7% in the June quarter.
- Takings from tourist accommodation in Tasmania grew by 11% in the year to June. Total Australian takings rose by 3.9%.
- The CBA’s Business Sales Indicator, measuring economy-wide sales, in September had its biggest back-to-back monthly increase in nine months.
What I didn’t like
- Eurozone growth concerns.
- The ANZ/Roy Morgan consumer confidence rating eased from 7-week highs, down by 2.3% to 115.5 in the week to November 20 but confidence remains above the average of 112.9 since 2014. And it’s only a weekly reading.
- Construction work done in the September quarter fell by 4.9% to be down 11.1% on a year ago.
- Engineering construction is down by 23.2% on a year ago – just shy of the biggest annual fall on record. Residential work fell by 3.1% in the September quarter, while commercial building work fell by a sizeable 10.9%.
Why Black Friday?
I have explained this over a number of years but I was surprised that the very smart Julia Lee of Bell Direct wasn’t sure why the Friday after Thanksgiving is called Black Friday. The reason is that retailers have been in the red for most of the year but when the holidays start in the US with Thanksgiving, Americans start their usual pilgrimage to the malls, where they shop until they drop! And as a result, retailers’ bottom lines go into the black. I’ve witnessed these sales when I’ve taken my TV show to the Big Apple and no one shops like an American. And with Donald Trump set to jump into the economic driving seat, as Ronald Reagan once famously said: “You ain’t seen nothing yet!”
The sales figures will be poured over by market analysts next week to see if the hype is matched with economic action. I suspect we’ll see that action, big time.
Top stocks – how they fared
[table “236” not found /]The week in review
- I explored how we should be playing stocks for the rest of 2016 and beyond [1].
- Paul Rickard explained what’s behind Telstra’s recent underperformance [2].
- James Dunn looked at 10 recovering retailers [3] and how they’re positioned in the lead-up to the Christmas rush.
- Roger Montgomery discussed whether iSentia’s recent price drop has presented a buying opportunity for value investors [4].
- Tony Featherstone told you to put emotion aside and consider taking profits in five well-performing stocks [5].
- Charlie Aitken explored whether gaming machine company Aristocrat (ALL) is in the buy zone [6].
- Melanie Dunn explained everything you need to know about the upcoming changes to the Assets Test [7].
- The brokers upgraded Ansell [8] but downgraded McMillan Shakespeare and Sydney Airport.
- In our second broker report, Westfield was in the good books while Sigma Pharmaceuticals was in the not-so-good books [9].
- And our stock selectors liked AGL and Brambles [10] this week but Newcrest Mining was out-of-favour.
What moved the market?
- Stocks continued to ride the Trump wave with Wall Street hitting record highs (check out the chart below).
- Minutes of the last Federal Reserve meeting, which suggested a rate hike is around the corner.
- Bullish price action for commodities.
- And European markets were cautious ahead of the Italian referendum in December.
Calls of the week
- The Senate passed the superannuation reform package.
- Boral made a $3.5 billion dollar bet on the US after acquiring Headwaters to beef up their exposure to the expanding US construction market. Let’s hope it doesn’t cause any headwinds! Read Paul Rickard’s [11] analysis.
- In case you missed it, Tony Featherstone tipped five stocks [5] to take some profits in.
- And Michael McCarthy kept to his call that the S&P/ASX 200 can hit 5900 by the end of the year.
The week ahead
Australia
- Tuesday November 29 – Weekly consumer sentiment
- Wednesday November 30 – HIA New home sales (October)
- Wednesday November 30 – Building approvals (October)
- Wednesday November 30 – Private sector credit (October)
- Thursday December 1 – Performance of Manufacturing Index (Nov)
- Thursday December 1 – CoreLogic Home price index (November)
- Thursday December 1 – Business investment (September Quarter)
- Friday December 2 – Retail trade (October)
Overseas
- Tuesday November 29 – US GDP (September quarter)
- Tuesday November 29 – US S&P CoreLogic home prices (September)
- Tuesday November 29 – US Consumer confidence (November)
- Wednesday November 30 – ADP Employment report (November)
- Wednesday November 30 – US Personal Income/Spending (October)
- Wednesday November 30 – US Pending home sales (October)
- Wednesday November 30 – US Federal Reserve Beige Book
- Thursday December 1 – US ISM Manufacturing (November)
- Thursday December 1 – China Manufacturing data (November)
- Friday December 2 – US Vehicle Sales (November)
- Friday December 2 – US Non-farm payrolls (November)
Food for thought
“People who succeed have momentum. The more they succeed, the more they want to succeed, and the more they find a way to succeed. Similarly, when someone is failing, the tendency is to get on a downward spiral that can even become a self-fulfilling prophecy.”
– Tony Robbins
Last week’s TV roundup
- Should yield-chasing investors be buyers when stocks such as Telstra, Transurban and Sydney Airport get rejected by the market? To discuss this and more, Paul Rickard [12] joins the show.
- Wall Street has been partying like it’s 1999 and even the local market has joined the ‘Trump-o-party.’ Charlie Aitken of Aitken Investment Management shares his thoughts on the market mania [13].
- JBWere’s Mike Kendall and Perpetual’s Matt Sherwood [14] join Super TV to discuss the stock market, the global economy and more.
- Is the stock market in for a big finish to the year? Michael McCarthy of CMC Markets [15] shares his thoughts.
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 the biggest mover was Nine Entertainment, with its short position increasing 1.24 percentage points to 12.49%.
Source: ASIC
Chart of the week
The Dow goes POW
Source: Yahoo!7
This week, the Dow Jones had a cracker, surging past 19,000 points for the first time ever!
Top five most clicked stories
- Tony Featherstone: 5 stocks to sell [5]
- Paul Rickard: Telstra’s NBN hole [2]
- Peter Switzer: What could go right or wrong for stocks? And how should we play them? [1]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [8]
- Charlie Aitken: Is Aristocrat a buy? [6]
Recent Switzer Super Reports
Thursday 24 November 2016: Buy or sell? [16]
Monday 21 November 2016: How to play stocks [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.