Three hours before the close on Wall Street, the Dow was just down, the S&P 500 was just up and the Nasdaq was 0.6% higher. This is extraordinary positivity, if you think about the near-10% gains for stocks in a bit under two months following the Trump election win and the end of 2016.
At first, the Nasdaq and tech companies were on the outer, as banks and industrials led the charge under the new President-elect’s promised economic policies of less regulation, more infrastructure spending and lower taxes.
In fact, this time next week, Wall Street will have had a chance to react to Donald Trump’s inauguration speech. If it’s as good as his victory speech, stocks will head higher. However, if it’s on par with some of his tweets, we could be in trouble!
Mind you, I expect Trump’s entrepreneurial, ‘know what the customer wants’ way will eventually tell him to “zip it” on too many divisive issues. However, at the moment, his popularity away from Wall Street is starting to slide, though that’s what the polls said before his election win!
From the low on the S&P/ASX 200 index of 5052 on November 9, the index is up an extraordinary 13.2%. Sensible investors are expecting a pullback is overdue, and yes, even a so-called perma-bull like me. Of course, I’d call any sell off another buying opportunity, as I expect to see our index see 6000 for sure this year. The likes of a very cautious George Boubouras of Contango Asset Management is guessing 6300 is also on the cards!
People like George don’t play the index – they try to beat it – but his outlook for the stable of stocks that he and his team select tell him that the index will be a beneficiary of Trump’s impact in 2017. Most of you know I don’t mind playing the index when markets get crazy and sell off like they did in January-February last year. I recall the ASX 200 index getting as low as 4707, which means those ETF-players, who ‘punted’ then, might have picked up 21% before we throw in dividends and franking credits!
What I’ve liked about the Trump rally is that everything that was on the outer is now on the inner, with banks and material stocks, along with energy, all back in favour. And just how Trump will have to deliver next week in his speech (then in the first 100 days after his speech to keep Wall Street positive), the likes of banks have to bring some great results to justify this rally.
So headlines about US banks with “strong earnings” and JPMorgan Chase’s CEO, Jamie Dimon telling CNBC he’s happy with Trump’s administration are good omens for the stock market.
Dimon’s company’s 24% profit growth beat forecasts and it came with less bad loans and even bond trading delivered nice results. Meanwhile, Bank of America saw its profit surge 43%. And you ask me why I remain positive on the US economy and stocks?
Sure, all this optimism will be challenged by the market over 2017 – volatility hasn’t gone away. Russia, China and European elections could be curve balls that could easily unsettle markets but the economic outlook both overseas and here all say remaining positive on stocks is still sensible.
This earnings season, which has just kicked off, provides a perfect backdrop for the Trump takeover next week. And if earnings’ outlooks add up to a pretty positive picture, then it will underpin stocks going higher over the year. However, as I have already reiterated, there will be sell offs and buying opportunities but I don’t expect to see 4704 on the S&P/ASX 200 index this year!
What I liked
- The US banks’ profit reports this week and the share price reaction even overnight and what it does to help our banks’ share prices going forward. However, US banks are up about 20% since the election and that’s why I see a pullback as probable.
- US earnings per share for 2016 were up only 0.9% but as energy companies lost 77% last year, it really crunched that important figure. It means the overall company scene was a lot better than that number makes it look. The EPS guess for 2017 is up 12%. I like that, with energy tipped to be up 350% earnings-wise, which I think says overall earnings could be up more than tipped.
- The US National Federation of Independent Business (NFIB) index of small business optimism rose from 98.4 to a 12-year high of 105.8 in December.
- Locally, the average credit card balance rose by $76.40 to $3,149 in November, which suggests consumers started to spend more in the December quarter.
- Spending at hardware, building and garden suppliers was up by 10.2% in the 12 months to November – the fastest annual growth in 1½ years. This suggests we’re starting to renovate, big time.
- Retail trade rose by 0.2% in November, to be up 3.3% over the year.
- The ANZ/Roy Morgan consumer confidence rating surged to a four-month high, up by 5.9% to 120.1 in the week to January 8. Confidence is up 5.3% over the year, well above the average of 113 since 2014. All five components of the index rose in the latest week.
- Job vacancies rose by 2.2% to 182,000 in the three months to November – a 5-year high. Job vacancies are up 9% on a year ago.
- New dwelling approvals rose by 7% in November, after sliding by 11.8% in October. It was only the second gain in the past seven months.
- Our trade balance improved by $2,362 million to a surplus of $1,243 million in November. It was the first monthly trade surplus in 33 months. The rolling 12-month deficit improved from $28.6 billion to $23.8 billion (the smallest deficit in 18 months).
- CommSec’s Craig James showed that “in October the number of passengers on the Sydney-Melbourne route was up by 1.1% on a year ago to a record 775,717. The Sydney-Melbourne route is one of the busiest air routes in the world. The Sydney-Melbourne route is also a key measure of business activity.”
- The Performance of Services index lifted by 6.6 points to 57.7 in December – marking the fastest pace of expansion since May 2007.
- In 2016, a total of 1,178,133 new vehicles were sold – a record for a calendar year.
- The CoreLogic Home Value Index of capital city homes surged by 1.4% in December and was up 10.9% over the year. Prices rose in five of the eight capital cities. Regional prices rose by 1.1% in November.
- The Performance of Manufacturing index rose by 1.2 points to 55.4 in December. A reading above 50.0 indicates that the sector is expanding.
What I didn’t like
- The Bellamy’s story. I’m waiting to be impressed by regulators and their responses!
- China’s trade surplus narrowed from US$44.61 billion to US$40.82 billion in December (forecast US$46.5 billion). Exports were down 6.1% over the year (forecast: -3.5%), while imports were up by 3.1% (forecast: 2.7%). We need China to stay strong.
- A survey from the Australian Industry Group, which showed our business leaders aren’t doing much for optimism. This is what the 2017 CEO Business Outlook Survey concluded: “Australian CEOs are cautiously optimistic about their business prospects in 2017 according to the latest Ai Group CEO Business Outlook survey. We are well short of exuberance with expectations tempered by the failure of 2016 to live up to expectations and by the wide array of local and global challenges on the horizon.”
- Trump’s tweeting – someone has to stop him!
Apology
I don’t seem to be able to find too much I didn’t like last week! I tried hard to find stuff to be worried about, aside from some unimpressive performance in Canberra. I really hope Malcolm and the team lift their game this year.
Top stocks – how they fared
[table “249” not found /]The week in review
- I explained how I’ll be investing in 2017 [1] and why I’m optimistic on the economy and stocks.
- The Switzer Super Report model income and growth portfolios powered ahead in December on the back of the post-Trump rally. Read Paul Rickard’s recap here [2].
- James Dunn revealed five stocks [3] that could provide healthy returns through a combination of dividends and share price growth.
- Rebecca James explored the impact of the superannuation reforms [4] on child pensions.
- Our Super Stock Selectors [5]liked Blackmores and Westpac this week, but not Newcrest Mining.
- If share markets play ball, IPOs are set for a big 2017 [6]. Tony Featherstone shared five 2016 floats that are worth a look in the New Year.
- There are many lessons we can learn from 2016, which was a big year on the stock market and for the global economy. James Dunn revealed what to expect in 2017 [7].
- What are the benefits of using the small business CGT concessions [8] for retirement purposes? Graeme Colley explained how it all works and what to look out for.
What moved the market?
- The first official press conference from US President-elect, Donald Trump.
- Reports that Saudi Arabia and Russia were trimming oil supplies to some Asian buyers.
Calls of the week
- US President-elect Donald Trump announced that his son-in-law, Jared Kushner, would likely be a senior White House adviser.
- James Packer made a return to the Crown board.
- Bellamy’s CEO Laura McBain was dropped as the embattled company deals with weaker-than-expected sales in China.
- And in case you missed it, James Dunn tipped five stocks [3] to watch in 2017.
The week ahead
Australia
- Monday January 16 – Tourist arrivals/departures (November)
- Tuesday January 17 – Weekly consumer sentiment
- Tuesday January 17 – Housing finance (November)
- Tuesday January 17 – New vehicle sales (December)
- Wednesday January 18 – Dwelling starts (September quarter)
- Wednesday January 18 – Consumer confidence (January)
- Thursday January 19 – Employment/unemployment (December)
- Friday January 20 – CommBank Business Sales (December)
Overseas
- Wednesday January 18 – US Consumer prices (December)
- Wednesday January 18 – US Industrial production (December)
- Wednesday January 18 – US Capital flows (November)
- Wednesday January 18 – US NAHB Housing index (January)
- Thursday January 19 – US Housing starts (December)
- Thursday January 19 – US Philadelphia Fed index (January)
- Friday January 20 – US Inauguration Day
- Friday January 20 – China economic data
Food for thought
You must do the things you think you cannot do.
– Eleanor Roosevelt – former US politician and First Lady
Last week’s TV roundup
- Super changes come into effect from 1 July, 2017. To outline what you need to know, Super Concepts’ Philip La Greca [9] joins Super TV.
- What’s the outlook for commercial property in 2017, and the potential impact of rising bond yields? CEO of Centuria Capital, John McBain, shares his views [10].
- Is the stock market rally sustainable? To discuss this and the stocks he likes right now, George Boubouras [11] from Contango Asset Management joins the show.
- How much higher can the US and local markets go? Gary Stone shares his technical view on where the markets are headed [12].
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. Please note: next week the table will show how this has changed compared to the week before.
Source: ASIC
Chart of the week
Super savers – credit card debt contained
Despite the latest average credit card balance rising $76.40 to $3,149.00 in November 2016, it hit a nine-year low in August ($3,071.50). According to CommSec, in smoothed terms (12-month average) the average balance was down by 1.7% on a year ago. How does your credit card debt compare?
Job vacancies jump!
Source: ABS
Total job vacancies in November 2016 were 181,000 – an increase of 2.3% from August. An encouraging sign for the jobs market and Aussie economy?
Top five most clicked stories
- James Dunn: 5 stocks to watch in 2017 [3]
- Peter Switzer: How I’m investing in 2017. Don’t believe the doubters! [1]
- Tony Featherstone: 5 IPOs to watch [6]
- Bernadette Morabito: Hot stock tips: Blackmores and Westpac [5]
- Paul Rickard: Portfolios power ahead in December [2]
Recent Switzer Super Reports
- Thursday 12 January 2017: Outlook for 2017 [13]
- Monday 9 January 2017: Be optimistic in 2017 [14]
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.