Yesterday we ran through the headwinds Peter Switzer says we need to be mindful of. But it isn’t all bad news: Peter flipped the coin and also identified the tailwinds he thinks could push Australia and the market forward, and the one event he is waiting on.
Peter’s read is that the headwinds are winning at the moment, which is why he is more defensive. But he was clear the tailwinds are still working, and that they are the reason the market has not fallen further.
The AI true believers keep buying the dip
The first tailwind is the appetite on Wall Street to keep buying the big technology names on any good news.
“The true believers in AI on Wall Street and on the Nasdaq have this ongoing market inclination to meet bad news with a willingness to rebuy these great tech stocks,” Peter said, “particularly if there’s a good piece of news or good outlook from one of the leading companies like Nvidia or Micron or Samsung.”
The rotation is putting a floor under the market
The second is the rotation out of the megacaps and into other stocks, which Peter says is holding the broader index up.
“There is this rotation,” he said. “People are taking profit, and they are looking at other companies rather than the Amazon, Microsoft, Google, Meta, Apple and Oracle, and they’re going to other companies. And that’s put a bit of a floor under the S&P 500 index. That’s good, because if they were getting out of all stocks we’d be looking at a substantial pullback.”
A US reporting season expected to deliver
The third tailwind is the American earnings season now getting underway, and the expectation that it comes in strong.
“There’s an expectation that reporting season, which is starting this week in the US, starts with the big banks first, and then they’ll go to the big tech stocks in the second week,” Peter said. “There’s an expectation they’re going to report really well. That has kept positivity in the market. Obviously we have to hope that they do report well, because this week is going to be critically important.”
He flagged the US data to watch alongside the results: consumer price index, industrial production, retail sales and housing starts. At home, the reads are lighter, with consumer confidence and business confidence the ones that could shape what the RBA does next.
What we’re waiting on
The biggest potential tailwind, on Peter’s telling, is the end of the Iran war, because of what he says would follow it.
“I want to see the Iran war over,” he said. “Then I’ll have the view that oil prices are on the way down, inflation is going to be coming down, and interest rate cuts won’t be too far off. All that would be great for the stock market.”
He also made the case that a shift in the local rate outlook would help. “I think the belief that we may be at the top and the next move might be down would be good for our stock market,” he said.
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