Local investors and institutions possibly showed themselves to be wimps compared to the brave, brash and ballsy Yanks, who looked at the Trump tax cuts that were passed over the weekend and went out and bought stocks. Regrettably, our most important stock market index — the S&P/ASX 200 — was up 3.9 points on Monday, while on the New York Stock Exchange, the Dow Jones soared over 200 points to record highs. Ditto for the more important index — the S&P 500 — which was up over 0.5%, meaning both indexes went further into record territory.
And so the test of our wimpy-ness will be based on what we do on our stock market today. If we play follow the leader, which I suspect will happen, then we have to cop the tag of ‘market wimps.’ It will go double if our banks do well today because this was the sector that starred on Wall Street overnight, with the banks’ ETF — KBE — up over 2.4% on the back of these tax cuts.
Sure, you can argue that these tax cuts don’t directly help our local companies but indirectly they will. How? Let me list the pluses, so here goes:
• It puts pressure on Canberra to push harder for lower taxes, especially on our companies that compete on the global front daily, for example Harvey Norman versus Amazon!
• It should help our dollar drop with the tax cuts likely to bring faster US growth, which, in turn, will deliver more US interest rate rises, pushing the greenback up relative to the Oz dollar. This helps our exporters and some of our best companies that operate overseas, such as CSL, BHP and Macquarie Bank.
• The US is crucial to world economic growth and when it is set to grow at 4% or more because of tax cuts, it potentially helps drive demand for commodities, such as iron ore and other minerals, which we sell in spades.
• Company profits undoubtedly will benefit from these developments.
• And all of the above have to be good for stock prices and our super funds.
All this could’ve been worked out yesterday by big investors, who influence our stock market on a daily basis, but I reckon they just wanted to see if the old market cliché applied, namely, “buy the rumour, sell the fact”.
I alluded to this as a possibility in yesterday’s column but hoped it wouldn’t be the case. This is how I concluded my piece: “I hope these tax cuts end up being the circuit-breaker that finally breaks up the remnants of the black cloud that has hung over the global economy since the GFC.
My fingers are crossed that a huge number of market influencers agree with me today.”
Our stock market gets a second chance to react properly to these lower tax ‘blue skies and white clouds’ blowing in from the States. I really hope we can react with the positivity that these tax cuts deserve.
My crystal ball says these tax cuts will push out the next US recession to at least 2020 or maybe later, so we have two good years up our sleeve to make hay while the sun shines.
I know Donald Trump looks like the President from amateur hour but tax cuts at this time in the economic cycle have to be seen as professional politics that should deliver more economic growth, higher profits, more jobs, higher real wages and better stock prices.
And importantly, the cuts should be a global plus, which will even come to our shores. If you doubt my optimism, then explain why the big German and French stock markets were up 1.53% and 1.36% respectively!
This is a great day for non-wimpy optimists, who regularly fight the doomsday merchants, who, in turn, wish Armageddon on us all, too often and all too soon.
These tax cuts make 2018 look good for the economy and stocks. It means I will be a little cautious in 2019 but I suspect I’ll still be positive. 2020 could be the year of living dangerously for stock players.
However, as I said earlier, let’s make hay while the sun shines and I hope the local market wimps help out!
P.S. The 'brave Yanks' did wimp out at the end with the Dow only up only 58 points but you can’t stop profit-takers giving into their wimp inclinations — even the good old USA!
That said it still was a more positive effort than what we pulled off yesterday. Let’s hope we redeem ourselves today.
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