Switzer on Saturday

I’m back and the good market news remains steroidal!

Founder and Publisher of the Switzer Super Report
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Friday Close
Change
Change %
Week Change %
Dow Jones
25,295.87
220.74
0.88%
2.33%
S&P 500
2,743.15
19.16
0.70%
2.60%
NASDAQ
7,136.56
58.64
0.83%
3.38%
ASX 200
6122.30
45.20
0.74%
0.94%
Data for week commencing 01 January, 2018

Happy New Year! I’m back and, like the markets, I feel pumped for stocks in 2018.

On Thursday, the Dow Jones index broke the 25,000 points level for the first time, with investors encouraged by the strong US report on private jobs and the good economic data in Europe and China.

This isn’t just a milestone about historically high levels, it’s also about the pace of the rise in stock prices.

The Dow broke above 24,000 for the first time on November 30, or 35 calendar days prior to hitting 25,000. It also took the Dow just 35 days to rise from 20,000 to 21,000 last year and CNBC says both of these rises are the fastest 1000-point gains ever!

“The Dow hitting 25,000 was a pretty wild idea even a year ago. And while it’s symbolically important, the real story is never just a number. It’s the underlying strength that is pushing markets this high,” said Steve Claussen, vice president of trader strategy at E-Trade. (CNBC)

And this happened despite a jobs report that actually came in less than expected. The Yanks created 148,000 jobs in December but economists’ consensus figuring tipped 190,000!

This was at odds with the private sector survey the day before, which pointed to 250,000 positions being created in the last month of 2017. As my “What I liked” list below shows, the run of economic data in the USA remains so strong and that’s the key to this spectacular rise in stock prices.

Best of all, the good to great economic stories are being reported worldwide from the US to Europe to China to Japan and yes, here in Australia as well.

On Monday, I’ll give you my state of the markets as at the beginning of 2018 but the best signs right now, as they have been for over a year globally and especially in the US, have been economic. And until they show real signs of weakening, I’ll keep running with the bulls, despite some convincing concerns trotted out by doomsday merchants, who have zero credibility after being so wrong for so long. Of course, they will be right one day but when you’re in the prediction game, being close on timing is pretty important!

By the way, stats experts tell me that December and January have a history of producing unreliable numbers, so I’m sticking to the trend as my friend when it comes to US jobs.

At home, the stock market news remains promising and it looks like Santa has given the gift that keeps on giving, with our S&P/ASX 200 Index continuing to create new 10-year highs with a lot of help from Wall Street’s sterling performance.

Locally, over the week, there was a nice gain of around 0.94% to end the week at 6,122.3, with the miners continuing to do the heavy lifting. Even the financials did well on Friday.

Fortescue Metals Group continues to climb and those damn lithium companies, such as Galaxy Resources, are again on the rise.

And the Federal Government helped medicinal cannabis companies, granting permission for them to export their products. MGC Pharmaceuticals Ltd (MXC) shot up 7.14% to 10 cents on the news and this little sector has potential for real ‘highs’! That will be when Canberra officially permits its widespread use domestically under doctor supervision for pain management and other patient-care uses.

What I liked

  • Our imports during the month of November rose by 1.5% to a record high $32.5 billion. Rolling 12-month imports increased at a 12.2% annual rate in November – a 7-year high. Rising imports is a positive indicator for economic growth.
  • According to the Federal Chamber of Automotive Industries (FCAI), new vehicle sales hit a record high of 1,189,116 units in 2017, up 0.9% on a year ago.
  • The CBA/Markit Manufacturing index rose from 56.3 to 57.1 in December. The Australian Industry Group (AiG) manufacturing index fell from 57.3 to 56.2 in December. (A reading above 50.0 indicates that the sector is expanding.)
  • The CBA Purchasing Manager’s Index (PMI) for the services sector rose to 55.1 in December from 54.0 in November. The index is at 5-month highs.
  • The Australian Industry Group (AiG) Australian Performance of Services Index (PSI) increased to 52.0 in December from 51.7 in November. The index remains over 50, signifying expansion of the services sector.
  • Over the year to October, the proportion of occupied seats on domestic flights hit a 6-year high of 79%. Load factor on the Sydney-Melbourne route was at record highs.
  • The CoreLogic Home Value Index of capital city home prices fell by 0.4% in December to stand 4.3% higher over the year. The national home price index declined by 0.3% in December to be up 4.2% over the year. It was the smallest annual growth in national prices in 15 months, which is exactly what the RBA wants.
  • The ADP national employment index in the US showed that 250,000 private sector jobs were created in December (forecast 190,000) and Wall Street liked what it saw.
  • The final December estimate of the Markit purchasing managers index for manufacturing in the US was 55.1, a near 3-year high and up from the ‘flash’ reading of 55.0 and up from 53.9 in November.
  • The ISM manufacturing index in the US rose from 58.2 to 59.7 in December (forecast 58.1). Construction spending rose by 0.8% in November (forecast +0.5%).
  • US factory orders rose 1.3% in November, exceeding expectations.
  • US auto sales rose from 17.53 million to 17.85 million in December (forecast 17.5 million).
  • Services PMI data showed the euro area was near its best growth in seven years, while services growth in Italy and Spain beat the previous flash estimates.
  • The Caixin purchasing managers index for manufacturing in China rose from 50.8 to 51.5 in December (forecast 50.6).
  • World oil prices lifted to 2½-year highs on Friday, with US Nymex just above US$60 a barrel. Strong oil prices tend to be positive for stocks, up to a point.

What I didn’t like

  • The doomsday merchants tipping market gloom for 2018. As usual, they’re trying to get it right, again, after being wrong since March 2009!
  • The non-manufacturing ISM index in the USA fell to 55.9 in December from 57.4 in November. As I’ve pointed out before, however, any number over 50 means the sector is expanding. This is a small disappointment in the whole scale of things.
  • The Oz dollar at 78.66 US cents isn’t a big help to economic growth but it is being pushed up by strong commodity prices, which is a help to growth.

Can we believe Kimmy?

I liked more positive vibes coming out of Kim Jong-un this week. According to an announcement, broadcast on state TV, formal communications along the border is to be resumed between North and South Korea and the directive came from the horse’s mouth – King Kimmy.

And he’s even thinking about sending his athletes south of the border for the Winter Olympics.

Are we seeing one threat to stocks dissipating? Let’s hope so.

Top Stocks – how they fared

screen-shot-2018-01-05-at-4-39-00-pmWhat moved the market?

  • Marijuana stocks skyrocketed after the Federal Government approved therapeutic marijuana products for export.
  • World stocks hit records this week and the European stocks were bolstered by upbeat data from the world’s largest economies. The Euro hovered near a three-year high and the US dollar fell against major currencies
  • Oil rose to its highest level since May 2015 over concern about supply risks due to unrest in Iran and a decline in US inventories
  • Australia’s trade slipped to a deficit of $658 million (November results) as exports plateaued and imports edged higher.The weaker than expected result was largely driven by the 1.5% m/m rise in import values, which itself was a result of the 3% m/m rises in consumption goods imports and capital goods imports.

Call of the week:

“Oh, oh, hang on, he hasn’t finished yet… he is 88 years of age, give him a little bit of leeway.” Shane Warne on Bob Hawke sculling a beer at the Australia vs. England Ashes Test match on Friday.

The Week Ahead:

Australia

  • Monday January 8 – AiGroup Construction Index (December)
  • Tuesday January 9 – ANZ-Roy Morgan Consumer Confidence
  • Tuesday January 9 – Building approvals (November)
  • Tuesday January 9 – ANZ job advertisements (December)
  • Wednesday January 10 – Job vacancies (November)
  • Thursday January 11 – Retail trade (November)
  • Friday January 12 – Credit and debit card lending (November)

Overseas

  • Monday January 8 – US Consumer credit (November)
  • Tuesday January 9 – US NFIB small business survey (December)
  • Wednesday January 10 – US Export/Import prices (December)
  • Wednesday January 10 – US JOLTS job openings (November)
  • Wednesday January 10 – China Producer and consumer prices (December)
  • Thursday January 11 –US Producer prices (December)
  • Friday January 12 – US Consumer prices (December)
  • Friday January 12 – US Retail sales (December)
  • Friday January 12 – China International trade (December)

Food for thought:

” The secret of getting ahead is getting started. The secret to getting started is breaking your complex overwhelming tasks into small manageable tasks and then starting on the first one” –  Mark Twain

 Stocks shorted

stocks-shorted_5thjan

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.