6 December 2019
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It’s becoming very possible that the improving outlook for stocks and our super could be trumped by Donald.

Is the stock market living in La La Land? Will it be Trumped?

Peter Switzer
26 July 2016

By Peter Switzer

The stock market’s performance of recent times has been spectacularly great and in case you don’t track stocks and your super, stocks are up about 17% since February 12. You have to throw in half a year of dividends and say another percent for franking credits and it says your super is having a good year.

But this isn’t a “we’ve been making heaps” story but more like “we’ve made a nice comeback but can it last?” tale. The chart below shows how a lot of your super fortunes have gyrated this year as a lot of our funds have a decent exposure to Australian stocks. Have a look at the S&P/ASX 200 index, which has our top 200 companies in it, over the past year: 

What this shows is how we started the past year around 5700 and then the view of the world got darker and darker and it wasn’t helped by the near failure of mega-mining company Glencore in September, which had some nincompoops comparing it to the collapse of Lehman Brothers, which trigged the GFC’s great recession in nearly all countries of the western world, except good old Oz land!

We bounced along around the 5000-5300 level, before a nasty drop in early January, which ended around February 12. The ASX 200 then spiked from 4765 to ignore the old adage of the stock market, which goes “sell in May and go away, come back on St. Leger’s Day.”

This year that historic race day meeting is on September 10, which is only a month and a half away! Since May, the market has gone from 5353 and is now 5533.6. So, by not selling, you’re up 3.3%. I guess the next few weeks could be testy but the sell-off time could actually be in October, if Donald Trump’s run towards the presidency becomes a real McCoy possibility.

We have a number of curve balls that could help or hurt the stock market coming up over the next few weeks. Tomorrow will be our latest inflation reading and if it’s lower than expected, the bet will be that the Reserve Bank will cut interest rates again next Tuesday and the stock market should go higher.

Why? Well, with interest rates falling and term deposits around 2.5-2.75%, stocks look so damn attractive, especially with the big banks’ dividends along with franking credits taking your returns over 7% and some are higher!

I think earnings season for our big companies that starts in August could easily push the stock market higher but then the shadow of Donald Trump could be the market’s biggest challenge, or will he?

Let me warn you, the media is getting scared in the US that it has created this Trump monster, which has been a great eye-stealer for those with online media websites. And he sells newspapers too but one newspaper — the respected Washington Post — is so worried about Trump’s progress that they have written an anti-Trump editorial with the US election on November 10.

Historically, a newspaper shows its colours a few days before an election but the editorial committee of the Post is getting frightened that Donald is getting closer to Hillary Clinton in the polls.

This sums up their concerns: "Donald J. Trump, until now a Republican problem, this week became a challenge the nation must confront and overcome," the newspaper’s editorial team concluded.

"The real estate tycoon is uniquely unqualified to serve as President, in experience and temperament."

But wait, there was more.

"He is mounting a campaign of snarl and sneer, not substance. To the extent he has views, they are wrong in their diagnosis of America's problems and dangerous in their proposed solutions."

They get personal, telling us he doesn’t read books but his desk has piles of magazines on it, generally with him on the cover! 

But what does Wall Street think of a possible President Trump? In fact, he worries the smarties there and this could mean that the US stock market could dive from its all-time high territory and our stock market would play follow the leader.

This whole Trump thing is getting serious now he has been given the nod as the Republican candidate. And that’s why the Post has moved so early to bag him. The latest headlines tell us that “Trump threatens to pull US out of World Trade Organization” and even more worrying “Convention lifts Trump ahead of Clinton in Polls.” And these both came from The Wall Street Journal!

Last year, CNBC ran with a headline of “Donald Trump terrifies Wall Street” and while we have recently learnt that not all of Wall Street is so worried about Trump’s policy promises, he certainly looks like a potential Black Swan event or X-Factor that could knock stocks for a six.

Donald has been created in La La Land — TV-land — and his popular The Apprentice has turned a ‘suss’ property developer with a checkered history as a successful entrepreneur into a ‘genius’ in the eyes of viewer-land, which is a proxy for the USA!

Sure, the media will now try to bring him down, however Trump is tapping into a vein of Americans who are suspicious of the status quo and even the conventional media that basically supports it.

And the bookies agree that he is becoming a real chance, with his odds now down to 7/4. He was over 3/1 a month ago and Hillary was a hot on odds-on favourite, just like the Remain odd with the Brexit vote!

It’s becoming very possible that the improving outlook for stocks and our super could be trumped by Donald and the maddies who think he is the US president that America had to have.

If you liked this article you'll love the Switzer Report, our newsletter and website for trustees of self-managed super funds. Click here for a FREE trial and to hear more of Peter’s expert commentary and advice.

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