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The good news for the week on the stock market was that there wasn’t any really bad news, except for the fact that key influential investors aren’t seeing enough to open up their purse strings to buy, when there were plenty of damn good economic reasons to do exactly that.

The S&P/ASX 200 index snuck up 3 points for the week after a 14-point loss on Friday, to once again disappoint those of us who’d love to see that bloody 6000 level dead and buried!

This has led to inquiries of “where in the hell is Santa and his blessed rally?” Of course, history says the famed pre-Christmas rally happens in the week before and just after December 26, so I guess we can live in hope.

That said, following the very good 228,000 jobs in the USA for November, when 200,000 was expected, we really should have had a bit of Yankee stimulus for stocks over the week but this counted for nought, even with some great news on the local economic front.

While business conditions and business confidence fell from elevated levels, both NAB readings were nicely above long-term averages.

But the great news story was consumer confidence where the Westpac/Melbourne Institute survey of consumer sentiment rose by 3.6% in December – a 4-year high – after falling by 1.7% in November. The index now stands at 103.3 (long-term average 101.5). A reading above 100 denotes optimism.

The chart below shows that the trend looks like being our friend.

But wait there’s more.

Another good piece of news for the Oz economy with 61,600 jobs showing up in November, which makes it 14 months in a row of employment rises!

“It certainly didn’t disappoint with 61,600 jobs created – the largest monthly increase in two years,” observed Ryan Felsman, senior economist at CommSec. “It has been an exceptional year for jobs growth – the second fastest annual increase on record – with around 383,300 jobs created over the past year.”

When you add business vibrations to consumer confidence to the unbelievable strength in the job market, it has to point to a good 2018 for the economy and some pretty good reasons to expect that stocks will have a good one as well.

Throw in the fact that the USA looks set to have at least three interest rate rises next year and we might not see a rate rise to post mid-year, it makes perfect sense that our dollar will eventually slip, though I’m not confident that Westpac’s Bill Evans’ call of 68 US cents will show up in 2018.

One little concern this week was the news that our most famous billionaires are cashing up!  So, I have to ask: “What do they know about the stock market that we don’t?” Let’s recap on the billionaires’ sell off. I need to do this again as it’s a recap of the big stories of the week:

• James Packer has sold $800 million of assets.
• Frank Lowy let go of Westfield’s shopping centre empire to French interests for $32.7 billion.
• Rupert Murdoch gets a $68.3 billion deal to let go of 21^st Century Fox!

That’s a lot of selling by local billionaires and I’m hoping they’re getting out early (too early) because they simply were facing deals they couldn’t refuse! On the other side of each of these deals there have been buyers so I’m hoping Disney, the buyer of Rupert’s baby and Unibail-Rodamco, the Westfield mega-shopper, are doing it because they don’t expect economic Armageddon around the corner.

And there’s always the argument that both Messrs Lowy and Murdoch are unloading digitally disrupted businesses and they simply might be getting out while the going is good.

That’s the local story. What are the US and overseas stories of the week? Well, Santa does look like he’s coming to town and it’s Donald Trump filling out the Santa suit. The Dow was up 145 points when I bounded out of bed this morning and it was positive vibes about the tax bill that was driving the sentiment. But you have to remember that the S&P 500 is already up 18% for the year and positive tax expectations were partly behind this rise in share prices. But more is expected out of this bill. “Industry analysts are projecting earnings gains of 10.9% this year, 11.4% next year, and 10.1% in 2019. Presumably, these numbers don’t fully reflect the likely big positive impact of a cut in the corporate tax rate next year,” said Ed Yardeni of Yardeni Research.

The noises are positive, just like the Fed meeting this week, which did nothing to lower the high expectations for the US economy and stocks in 2018. The tax bill looks likely to be passed by the middle of next week and if it is, look out for Santa.

If it fails, there could be a pre-Xmas sell off – don’t think about it!

Meanwhile, we saw solid economic growth in China this week, despite a tightening of monetary policy. Consumer confidence in China is at a 22-year high and retail sales remain elevated, supporting household consumption. Shoppers spent in excess of US$25 billion in 24-hours during China’s annual Singles Day sales on November 11.

Japan’s economy expanded an annualised 2.5% in the July-September period, to mark a seventh straight quarter of expansion.

All the above maintains my optimistic view for stocks in 2018, which rests a lot upon the great outlook for global growth.

What I liked

• This quote from AMP Capital’s Shane Oliver: “We remain of the view that the broad trend in shares will remain up because we are still in the sweet spot in the investment cycle – with OK valuations, solid global growth and improving profits but still benign monetary conditions.” (SMH)
• M&A action such as Westfield, which says the buyers see value at current share prices.
• Local unemployment remained at 5.4% in November, despite a rising participation rate.
• Not only 61,600 jobs in November showed up but the trend hours worked rose 3.4% over the year, the fastest growth in seven years!
• Over the past year, a record 1,366,900 tourists came to Australia from China, up 13.1% over the year. Tourists from China and Hong Kong rose to a record 1,645,900 over the past year, up 13.6% over the year.
• The Bureau of Statistics reports that Australian home prices fell by 0.2% in the September quarter to stand 8.3% higher over the year (we want lower price rises nowadays).
• US retail sales – up 0.8% – increased more than expected in November, as the holiday shopping season got off to a brisk start, pointing to sustained strength in the economy that could pave the way for further Federal Reserve interest rate hikes next year. (Reuters) Economists were tipping only a 0.3% rise!
• This from the Fed: “Economic growth (GDP) forecasts were increased to 2.5% in 2018, up from the previous forecast of 2.1%. The unemployment rate is expected to fall to 3.9%, down from 4.1%. But inflation is expected to remain below the Fed’s 2% target for another year. Three interest rate hikes are expected by the Fed in 2018.” (CommSec)
• Japanese manufacturers’ business confidence improved for a fifth straight quarter in the three months to December to hit an 11-year high.
• Chinese economic data on retail, industrial production and urban investment remained solid.

What I didn’t like

• The franchise mishandling by Retail Food Group that led to a Fairfax investigation by Australia’s scariest investigative journalist, Adele Ferguson.
• The NAB business conditions index fell from a 20-year high of +21.1 points to +12.2 points in November. The business confidence index fell from +8.6 points to +6.3 points. I don’t like any retreat in a good indicator but the readings are still well above their long-term averages.
• At the end of September, there were 40,200 more homes than at the end of June. But the number of NSW homes rose by just 7,600 – the smallest quarterly gain in 3½ years. (Not really worried about this but it is a negative for NSW I will watch. Unemployment in NSW is a very low 4.6%!)
• The average credit card balance fell by $15 to a decade low of $3,061.90 in October. The number of credit cards is now falling in annual terms for the first time on record but young people don’t like credit cards and are looking at alternatives, such as the Afterpay option, which explains why this company’s share prices has done so well. Its share price has gone from $2.70 to $5.30 in a year.

Taxing times

The US stock market didn’t like the news that Republican Mark Rubio didn’t like the tax bill but today he said he would pass it and stocks surged. Some Dow Jones companies already whittle their tax down and will derive little benefit, such as Pfizer 18%, Nike 14% Microsoft 14% and IBM 10%, according to CNBC. However, companies such as Home Depot pay 36%, Verizon 34%, Disney 33% and McDonald’s 33% and so a 21% tax rate looks awfully appealing and explains why the Index is in and around record highs.

I hope this bill gets through next week because if it doesn’t, gravity will take over on these rising stock markets.

The Week in Review

• There’s too much good news to be a Grinch. Find out why I’m bullish on stocks for 2018!
• Paul Rickard gave a sector-by-sector playbook for the Australian stock market next year.
• As the dust settles on a tumultuous year, James Dunn took a look at the key take-outs of 2017.
• The bulls might be singing the loudest but don’t forget to listen to the bears to find your happy medium. Roger Montgomery told us to think of the extremes as the flags between which we must swim.
• A bottom-up, case-by-case analysis is needed for 2018, and investors need to part ways with stocks that have been bid up too high. Tony Featherstone looked at three overvalued stocks to divest in 2018.
• Value and cyclical equities should outperform next year while Chinese shares listed in Hong Kong offer an alternative to fully-priced US equities. Charlie Aitken named three things you need to know about global equities.
• Among this week’s Hot Stocks was a popular aquaculture company and a well-known telecom.
• In Buy, Hold, Sell – what the brokers say telecom companies were the focus following the news NBN would cease HFC sales for 6-9 months.
• And in the second Buy, Hold, Sell – what the brokers say, a commodities outlook update at UBS was behind many of the broker actions this week.
• You probably use its services but do you understand the investment case? Amazon is this week’s Professional’s Pick.
• Plus, this week Paul Rickard answers all of your Questions of the Week on Tabcorp and synthetic ETFs.

Top Stocks – how they fared

What moved the market?

• Members of the US Federal Open Market Committee raised its GDP estimate from 2.1% in September to 2.5%. The Fed’s also increased their cash rate by 0.25% to a target range of 1.25% to 1.5%.
• Australia’s shopping centre king, Frank Lowy hung up his crown after selling Westfield for $32.7 billion to French property giant, Unibail-Rodamco. Westfield shareholders will receive $10.01 per share — a premium to Westfield’s shares, which last traded at $8.50.
• Walt Disney struck a deal to buy film, television and international businesses from Rupert Murdoch’s 21st Century Fox for $US52.4 billion ($67.8 billion) in stock as the world’s largest entertainment company seeks even greater scale to combat growing digital rivals Netflix and Amazon.
• Unemployment is at a four-and-half-year low despite November’s ‘boom’ in jobs.

 Calls of the week

• USA Today called Trump “unfit to clean Obama’s toilets”
• “The housing boom is over!” – Peter Switzer
• Tony Featherstone named three overvalued stocks that you should divest in 2018. Read more here

 The Week Ahead:

Australia

• Monday December 18 – Mid-Year Economic & Fiscal Outlook
• Monday December 18 – New vehicle sales (November)
• Tuesday December 19 – Reserve Band Board minutes
• Wednesday December 20 – Finance and wealth (September quarter)
• Wednesday December 20 – CBA Business sales index (November)
• Thursday December 21 – Detailed labour data (November)
• Friday December 29 – Private sector credit (November)

Overseas

• Monday December 18 – US NAHB housing index (December)
• Tuesday December 19 – US Housing starts (November)
• Wednesday December 20 – US Existing home sales (November)
• Thursday December 21 – US Economic growth (September quarter)
• Thursday December 21 – US Philadelphia Federal Reserve
• Thursday December 21 – US FHFA home prices (October)
• Friday December 22 – US Personal income/spending (November)
• Friday December 22 – US Durable goods orders (November)
• Friday December 22 – US New home sales (November)
• Wednesday December 27 – US S&P/Case Shiller home prices (October)
• Wednesday December 27 – US Consumer confidence (December)
• Wednesday December 27 – US Pending home sales (November)

 Food for thought

“To be successful, you have to have your heart in your business, and your business in your heart.” – Sr. Thomas Watson

Last week’s TV Roundup

• What stocks are looking good for 2018? Will the share markets continue to rise? ST Wong joined Switzer TV to answer.
• Social media is now a common business tool used to tap into specific markets. To discuss the social media trends of 2017 and what we should expect in 2018, John Williams from One Small Step joined Switzer TV.
• New Year, new fears! A recent report by KPMG outlines Australia’s business leader’s biggest concerns for 2018. To find out what is keeping leaders up at night, KPMG partner Grant Wardell-Johnson discussed.
• Elio D’Amato from Lincoln Indicators joined Switzer TV to give his thoughts on the coming year, and whether 2018 will be a good year for Australia’s market.
• Is the Bitcoin bubble ever going to burst? Adam Poulton President of Blockchain Australia shared his thoughts on this and discussed the future of the Blockchain technology.
• Is a Christmas rally on the cards or is Santa’s sleigh going to be slow? Michael Heffernan from Phillip Capital shared 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 shows how this has changed compared to the week before.

Charts of the week

Source: tradingeconomics.com | ABS

Source: Commsec

Top 5 most clicked

1. Paul Rickard – How to play the Australian stockmarket in 2018
2. Peter Switzer – I’m a believer in stocks for 2018 – here’s why
3. Tony Featherstone – 3 overvalued stocks to divest in 2018
4. Tony Featherstone – 3 stellar stock ideas for 2018
5. Rudi Filapek-Vandyck – Buy, Hold, Sell – what the brokers say

Recent Switzer Reports

• Monday 11^th December – Believe in 2018
• Thursday 14^th December – International optimism

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.