'Expect the bulls to run'

In case you missed it, this past week was huge for the potential for stocks and our economy. So without any further ado, let’s go for it.

His optimism is even greater than mine!

The stock market is first because this introduces you to the Arnold Schwarzenegger of bulls. Tom Lee is head of research at Fundstrat Global Advisors and he told CNBC last week that US stocks are likely to run higher for the next 11 years!

I love this guy though he’s even too much for me but his market-calling history says he shouldn’t be easily dismissed.

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“Both Fundstrat technical strategist Rob Sluymer and I think it’s more like 2029 is the peak of this equity market cycle and then, the S&P is 6,000 to 15,000,” he said. “We’ve had so much caution since ’09 that animal spirits have been depressed,” Lee said. “Last year, 2017, was probably the first time in nine years that I thought institutions were actually bullish,” Lee said, adding that he doesn’t particularly find any Fundstrat institutional clients that optimistic on stocks right now since they did so well last year.

Two great years ahead

Lee was the top stock strategist at J.P. Morgan before co-founding Fundstrat in 2014. He was one of the few market experts who tipped a Trump election win would spark another leg up for Wall Street’s bull run. And while his belief in stocks is yours truly on steroids — I can see two good years before I start to take some cover against a crash — there are other bulls who are a little more measured.

Another thumbs up!

Fan Cheuk Wan, is MD of HSBC Private Bank, gave the outlook for stocks a big thumbs up for 2018. She believes that the synchronized global economic recovery, China’s stable growth story, central banks gradually moving back towards normal monetary policy and Donald Trump’s tax reforms have helped the outlook for stocks.

Her favourite picks

For those wondering if they should invest overseas, Ms Fan likes the US, the Eurozone and emerging markets with South Korea, India and Singapore favourites amongst her Asian picks.

Interestingly, she like the tech sector, which, she argues, will do well out of tax cuts but she also likes global financial companies, at a time when local experts don’t like banks.

Expect the bulls to run

Not surprisingly, Fan says to expect volatility this year because the bull market is in an advanced stage.

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What is she worried about?

Growth being too fast, which breeds inflation and that leads to quicker-than-wanted interest rate rises.

Why are others wary?

Ironically, those wary of stocks this year say a problem might be that the US economy won’t grow fast enough to justify the Trump tax cuts and this could play havoc with the country’s budget deficit! This has been used to explain why the greenback has been falling, which, in part, explains why our dollar is around 80 US cents.

Other happy chappies

To other optimists, and Deutsche Bank has jumped on the Switzer bandwagon, with its equity strategy team tipping 2018 to be another good year for the Australian market. That said, they think we will again lag overseas markets, such as the US and Europe. “Market valuations should be sustained at above-average levels, while earnings growth is expected to be reasonable,” strategist Tim Baker said.

How’s the Oz economy going?

We got a ripper of a number on Wednesday that makes this optimist, who has been telling you our economy is on the up, very happy. The latest Westpac-Melbourne Institute Leading Index, which puts together a whole lot of indicators on the economy to try and predict where the Oz economy is heading, was great reading.

This is a HUGE number

This important index for forecasting our future showed a six-month annualised growth rate reading of +1.41% in December. Now you might be asking “so what?” The number seems meaningless but you need to know the previous reading was only +0.66% in November. That’s a big jump of 113%!

What does the index point to?

The index indicates the likely pace of economic activity — growth of production of goods and services, job creation, business profits, etc. — relative to trend three to nine months into the future. Bill Evans, who heads up the Westpac economics team has been constructing and watching this index for decades and his reaction is worth noting. “This is a very strong above trend reading and, following the solid results in October and November, points to solid above trend growth in the early part of 2018.”

What does this all mean?

This is economist speak for: “This is a ripper number and I’m really excited about the prospects for the Oz economy!”

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How about the jobs market?

This good news comes as the Australian Industry Group survey predicted over 400,000 new jobs this year and it makes it very possible that this better-than-expected growth of the economy translates into better company profits and higher stocks prices.

Keep all this in perspective

All this looks fantastic as reporting season for our top companies starts in February and if this great economic data converts into better-than-expected profits, then those positive views on stocks could be spot on. That said, I can’t back Tom and his 11 years left for this bull market. What’s he on?