Right now, like never before, one US president and the hard to understand Iranian leadership are controlling the destiny of our super balances and wealth-building. And what these weird people decide to do will hit out bottom lines.
Consider this, Trump and Iran’s Ayatollah team keep the war going, so what happens?
First, oil prices spike up again, hitting petrol prices at the bowser. This adds to inflation, so the RBA raises rates again, which will slow down our economy and inevitably hit stock prices.
Overnight, the US President said peace talks are proceeding but then he went to his Truth Social and said that the Islamic republic’s leaders “unbelievably duplicitous” and accused them of lying about peace talks that are underway “whether Iran wants to admit it or not.”
This is good news for our stocks and super is if it can be believed and I can’t categorically say, the possibility of peace is on or off the board right now but Wall Street is in the Trump-believers’ camp.
What we learnt overnight is that the anti-tech trade is weakening largely on the quality of the US company reporting season.
AMP’s Shane Oliver summed up US reporting season and his story explains why Wall Street sentiment has gone positive on Monday. This is what Shane has explained in his weekend note: “The US earnings reporting season has now seen around 60% of S&P 500 companies reports with around 87% exceeding expectations. The consensus expectation for earnings growth has now risen to 27%yoy (after adjusting for one off asset revaluations at Alphabet which had blown it out to 38%yoy). Earnings growth is being led by energy and tech companies.”
He added on Friday the following: “So far investors appear increasingly wary though of the AI capex spending boom though.”
Well, this was the story from the Big Apple on Monday, with the Dow up 693 or 1.32%, while the S&P 500 added 1.48% and the Nasdaq tacking on a 2.13%. A week ago these indexes were under siege, but for now all seems to be forgiven.
“The market is pricing in that big tech capex spending is earnings an attractive return on investment,” Jed Ellerbroek, a portfolio manager at Argent Capital Management said to CNBC.
“Semiconductors and data centre capex beneficiaries doubled or more in 2Q, then had a huge decline in July, but the fundamental truth was unchanged that whole time: demand for accelerated computing is well above supply, and the gap isn’t closing.”
The words “ the gap isn’t closing” are vital.
“The weight of the AI sell-off is gone right as [Situational Awareness] got liquidated last week, and then the biggest thing is there was some fear going into the weekend of more Middle East instability,” Monaghan said. “Even though that ebbs and flows and seems to be on-off every single week, the tone and the rhetoric really seems to be we’re going to try and get this thing fixed.”
This from Michael Monaghan, partner and portfolio manager at Founder ETFs paints what I think is the smart observation: “The weight of the AI sell-off is gone right as [Situational Awareness] got liquidated last week, and then the biggest thing is there was some fear going into the weekend of more Middle East instability. “Even though that ebbs and flows and seems to be on-off every single week, the tone and the rhetoric really seems to be we’re going to try and get this thing fixed.” (CNBC)
What is vital for stocks to continue going higher is for peace to come to the the Middle East, which will take down oil prices, inflation and then interest rates. This scenario on top of AI investing companies showing positive results, as we’ve seen in recent weeks with US reporting season, will be great for stocks and our super.
I think the AI story will prove a winner and so the crucial development for investors to watch is the Iran story.
“Diplomatic progress is likely to be punctuated by periodic military flare-ups, while miscalculation by either side could trigger a renewed escalation,” wrote a researcher at BMI of Fitch Solutions. The firm said the key issue to watch is the future governance of the strait, as the Iran-Oman talks — potentially backed by Gulf states, China and the US — point to efforts to build a post-conflict shipping framework.
I’m positive on stocks going forward but we do need Donald Trump to pull off a deal, ASAP!
