6 June 2020
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No one knows what's going on with stocks, but I'm not worried!

Peter Switzer
23 June 2017

By Peter Switzer

The story doing the rounds to fill up media space was that stock lovers were turning their attention northward - to Asia - and that’s why our stock market had the worst day this year, losing 1.6% on Wednesday.

And it was the worst day since Donald Trump shocked the world with his election win last year.

For good measure, the weaker Aussie dollar was thrown in as an excuse, but it’s still over 75 US cents.

One of my old students now at Citi, Tony Brennan, is selling this Asia-is-better-than-us story, while some fund managers are supporting the lower-dollar thesis, saying it’s being driven by offshore sellers.

But in truth, no one really knows what’s going on right now, though it seems apparent there’s not a big appetite to sell off.

So let’s do a wrap of what is explaining this stock market that doesn’t want to go up, but is not keen to jump on board a possible Trump dump.

Here goes:

  • Trump’s tax plan offers both hope to drive stock prices higher, but the delays are worrying some sectors of the market. That said, I reckon this tax plan is a good chance this year. Trump needs a real win and the Treasury Secretary, Steve Mnuchin, this week said he’s hopeful of a yes vote this year! That’s a positive.
  • The US economy has had some mixed economic messages, but this is what AMP’s chief economist, Shane Oliver, thought last week: “US data was a bit messy but consistent with reasonable growth and continuing low inflation. May retail sales were soft, but this was countered by an upwards revision to already solid April sales and in any case the New York & Philadelphia Fed manufacturing conditions surveys were strong in June, small business optimism remains very high, home builder conditions remain strong and unemployment claims remain around their lowest since the early 1970s. Against this core CPI inflation was weaker than expected in May at 1.7% year on year. The US economy continues to look good but the lack of inflation pressure means the Fed can afford to remain gradual.” Call that a positive.
  • The European economy is doing better than expected and even Italy, where I am writing this, is performing better than expected. Positive.
  • Chinese economic data is coming in better than expected and so is Japan’s. Positive and positive!
  • Iron ore prices and oil prices are giving into gravity. Double negative, but who knows what happens in the mining world?
  • The bank levy did not help the banks and the SA special levy is another curve ball for our most important sector within the S&P/ASX 200 Index. Negative.
  • Local earnings are not as optimistic as they were, but they are still expected to be better than last year. Neutral.
  • We made 133,500 jobs in the three months to May after a 42,300 gain in the previous three months and unemployment has dropped from 5.9% to 5.5% over the past few months. Positive.
  • Business confidence is near seven-year highs, but consumer confidence says pessimists outnumber optimists. Positive, plus a negative.
  • Meanwhile, we seem to live in perpetual high anxiety about Amazon, but smart fund managers like Ben Griffiths from Eley Griffiths argues we’re overreacting and many retail stocks look like good value right now. One stock he likes is Noni B. Perceived negative, but could turn positive when the Amazon threat is downgraded - and it will be.

The only conclusion the data I’ve presented shows is that there are no compelling reasons to buy madly but you’d have to be a very negative person to want to dump stocks right now.

The simple fact is we’re waiting for a Trump pump or a Trump dump of stocks if Congress stumps the Trump tax plan.

Donald Trump. Source: AAP

Underpinning all of this is a virtual army of dip-buyers out there who rush in every time the market overreacts.

I’ve noticed every time my SWTZ dividend growth fund has a bad day, the inflow of support the next day is actually very solid.

You might not like him but if Donnie is impeached it will hurt stocks and if he gets his tax plan up our S&P/ASX 200 Index will beat the 6000-level, so that would be a 5.2% gain plus about 2.5% for half a year of dividends - and then throw in some franking credits.

As I’ve implied, if the market wants to concentrate on the negatives and ignore the considerable positives, then I’m up for making some money.

The ASX is typically responsive to global recoveries, such as the one happening now. 

But the Australian market is currently showing few signs of a synchronised up-swing, Citi's analysis noted.

Economic indicators like strong business conditions and employment growth are being balanced by weak household sentiment and spending in Australia, providing a relatively complex local picture for global investors to digest. 

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