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Australia Day took our eye off the main game

Peter Switzer
27 January 2017

By Peter Switzer

While we rallied around the flag for Australia Day and watched Roger Federer rally with Stan Wawrinka to go into the Aussie Open Final on Sunday, over on Wall Street (where the main game is played), stocks rallied to beat the once hard-to-beat 20,000 level!

The US stock market has always been the top seed when it comes to what drives the confidence levels that drive the world economy. And that’s why we accept the old maxim that “when Wall Street sneezes, the rest of the world catches a cold!”

October 1987’s crash and the 2008 GFC easily proved this point. And right now we’re living through what has been labelled the Trump rally, even though I have to warn that February, if history is any guide, could bring a market pullback.

That said, the Trump phenomenon has been built on ‘expect the unexpected’, so despite US stocks being up 8% and the Dow up over 10%, this rally could easily surprise to go higher.

However, even only a day after the Dow beat the 20,000-level, Canaccord Genuity’s chief US strategist, Tony Dwyer (who’s regarded as one of the big bulls on Wall Street and, let me say, has been right for a long time fighting the doomsday merchants who’ve scared many long-term investors out of making damn good money from stocks), is warning “a nasty drop may be imminent.”

Of course, this ongoing question of “should I buy now or wait for a sell off to buy at better value?” represents what happens as a bull market climbs what the stock market fraternity calls ‘the wall of worry’. 

Yesterday, I had the great pleasure of watching the Williams sisters play their way into the final of the Australian Open on Saturday. I was chatting to a highly respected fund manager who, like Dwyer, thinks a pullback wouldn’t be a surprise. More importantly, he said he was confident that stocks were likely to keep going higher over the next two years.

Of course, this is a guy who never takes his eye off the main game — what stocks and their drivers do. He actually confessed: “I never really sleep because I’m charged with the precious responsibility of looking after other people’s money.”

Getting stock markets right in the short term isn’t easy and someone like my fund manager mate knows that many like him will take profit when the market has outperformed expectations in a quick period of time, like it has since the Trump election victory.

Recently, arguably the world’s most successful investor of all time, Warren Buffett, said he doesn’t know what the market will do next week or even over the next two years but he’d always “bet on America over 10 years.”

I reckon our market will take the lead incentive after Wall Street again saw the Dow go higher, with the most watched index in the world ending at 20,100.91.

My educated guess is that a sell off is very possible in February or March. However, as long as economic and company profit readings are positive, which I expect, and Donald Trump makes policy decisions that are better than his tweets, then any market sell off will be a good time to buy stocks.

And when those times come, I’ll make the call because, like my fund manager tennis companion, I seldom take my eye off the main game.

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