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President Trump is not the Messiah but the market was positive post-speech

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Data for week commencing 16 January

With two and a half hours to trade, the Dow Jones index was up 75 points. It’s not a ringing endorsement of the 45th President of the USA and while I was looking to see if good or bad Donald Trump showed up for the inauguration speech, it looks like a slightly good but still somewhat bad version took the oath in Washington this morning.

CNBC led with the headline: “Stocks cut gains as President Trump takes protectionist tone in speech.” That says it all. Bad Donald was going to be excessively protectionist in his speech, while good Donald would rely heavily on tax cuts, infrastructure spending and less financial institution regulation.

However, if US stock markets end up in positive territory by 8am our time, it will be because the key drivers of equities agree with JPMorgan’s CEO Jamie Dimon, who says the Trump presidency is a “moment of opportunity.”

At his best, Trump can deliver better economic growth for the USA and that helps the world economy along with Australia, which benefits on better global growth as an export-oriented country.

At his worst, he creates the seeds to grow an international trade war and when he tells the American people that “you will never be ignored again” that worries me a little, though my only comfort is that this is a politician’s promise. And while you could argue he’s not a conventional politician and his success has come from being entrepreneurial and thinking/campaigning outside the square, entrepreneurs also have a history of dreaming big but not always delivering because the realities of economies and markets of customers don’t always work out as they’d expected.

All this comes as the S&P 500 has done something that CNBC says hasn’t happened for 11 years. Just when we were expecting volatility on stock markets, the S&P 500 has gone for 68 days without a 1% drop!

This is the longest run without a notable sell off since 2006 and BK Asset Management’s Boris Schlossberg did spoil it all by giving us a history lesson: “And you can remember what happened in 2007 and 2008.”

If you can’t, just think GFC crash. Obviously, volatility is likely to make a return this year and it will be Donald Trump’s policies, utterances, negotiations and tweets that could determine that turbulence.

The Russell 2000 has lately underperformed and that can be an early sign that the S&P 500 could be in for a testing time. Clearly, headlines aren’t telling us that we’re on the yellow brick road to market happiness following the Trump speech. This reinforces the fact we should expect some pricing pressure on stocks, in the short-term.

I remain positive on stocks for 2017 and Jamie Dimon’s confidence in that department helps my optimism.

And even though Trump looks all talk, companies have responded. US car companies are changing their Mexican production plans, defence and aviation contractors have been asked to sharpen the pencil on price and Obamacare looks to be on the way out. However, the new President does have to deliver big promises, such as his wall that he said will be paid by Mexico.

Promises like these, and what has to happen to make them come to fruition, makes me think: expect volatility ahead. That said, as I indicated above, I expect a rising trend for stocks because I don’t think Trump will fail. He will have failures but I can’t see him failing. Neither does the market.

Helping him has been a pretty good US economy so some of the Trump rally has been economic developments coming via the efforts of the Fed’s Janet Yellen and President Barack Obama.

Jobless claims are at their lowest levels in decades and inflation is coming back to around 2%, which is in contrast to those nincompoops who were telling us deflation was coming. Do these people ever say sorry for these big, bad calls?

Meanwhile, in our excessive preoccupation with Trump, we’ve given insufficient attention to the US reporting season, which has been pretty good and reinforces my view on stocks for the year.

What I liked

What I didn’t like

One non-Trump point

I don’t like things like petrol prices rising, higher inflation and the thought of interest rates going higher over 2017 but I do like what it implies. These developments are what you expect of a normal, non GFC-infected economy and it’s time we lived with one of those. Let’s hope Donald doesn’t ruin these nice trends that we’re seeing.

Top stocks – how they fared


The week in review

What moved the market?

Calls of the week

The week ahead



Food for thought

A genuine leader is not a searcher for consensus but a molder of consensus.

Martin Luther King, Jr.

Last week’s TV roundup

Stocks shorted

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.

This week, one of the biggest movers was Vocus Communications, with a 0.84 percentage point increase in the proportion of its shares sold short, to 10.92%. Bellamy’s went the other way, with its short position decreasing by 1.92 percentage points to 7.22%.


Source: ASIC

Chart of the week

Source: ABS, CommSec

Full-time employment rose by 95,000 during the December quarter. That’s the best quarterly gain in six years!

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