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Facing off on investing in 2017 with Peter Switzer
What you are about to read is a first, with my decision to interview myself on what I expect for investing in 2017!
Peter: We’re going to look at how I see investing in the year ahead and because it’s not a done thing for me to interview myself, I’m going to do exactly that! So how do I see 2017 for investors?
Myself: I think it’s going to be another good year for stocks and I put it down to three positives:
The economic outlook.
The expectations about corporate profitability.
Donald Trump and what his surprise election win means.
Peter: Well, let’s start with the economic story first.
Also read: Oz economy goods beats bads!
Myself: Here I’m bullish on both the local and overseas outlooks. The USA looks likely to grow faster under a Donald Trump presidency than it would have under a Hillary Clinton one. There are three reasons cited for this Trump-related economic optimism but I think there’s a fourth that’s underestimated.
Peter: Well, for the sake of drama, gives us the three known-knowns first.
Myself: That’s simple: lower taxes, less regulations (especially on financial institutions) and, finally, the promise of big infrastructure spending. That’s the Trump promises and Deutsche Bank has recently tipped that his policies will double US potential economic growth and that very headline is a bottler.
Peter: And the fourth?
Myself: The Trump effect (even with his potential problems, such as a China trade battle) is a big confidence circuit breaker turning post-GFC negativity into post-Trump positivity. This partly explains why the Dow is approaching 20,000 and why our market shot up 9% after his win. This comes with the economic outlooks for China, Japan and Europe getting better than were expected six months ago. Donald’s win was timely.
Peter: That’s the economy. What about the corporate profits’ story?
Myself: Well, even before Trump won, the profit outlooks for US and Aussie companies were looking promising. And I think the support for our once beaten up big cap companies is this: if you add Trump to our improving economies and already positive profits expectations, you have to think stock prices can resist gravity and at least sneak up over 2017.
Peter: Why sneak up?
Myself: I think a lot of the Trump gains for stocks have already happened and now we have to see some policy wins to justify these new elevated stock prices. I expect volatility but on a rising trend, provided we see some Trump wins in Washington and he manages his China syndrome professionally.
Peter: OK, you’ve covered off on the economy and profits, which both help share prices, and you’ve weaved the Trump role into the story. So how will you invest this year?
Myself: Last year, I liked the big miners when they were belted up and the banks, along with other big cap company stocks. I also liked the overall index and I bet ETF players did too, if, say, they bought the ASX 200 index at 4707 for a 22% gain!
This year I’m not dumping the big caps but the upside will probably be restrained. I’m looking for smaller companies that have a good business model and especially if they also have a good history for paying dividends, which actually grow.
Also read: 5 out of favour Australian stocks with 'aroma of positive alpha'
I think we will see 6000 on the S&P/ASX 200 index and the next target is 6300, which is only 9.4% away.
I don't think the bull market is dead yet and history says we beat the old market index high before stocks heads back into crash territory. Donald T could bring forward the timing of the next crash but I doubt whether he’ll manage it in one year. Hillary Clinton would not have excited markets so the rise in stock prices would have been slower and, therefore, crash time might have been a lot further away than with Donald.
As many of you know, I like the observations of Sir John Templeton who told us: “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.”
Peter: Did Donald’s first press conference since his election win worry you or add to your optimism?
Myself: It was billed as an important press conference. The way I was always going to assess its effect was to look at what happened to the Dow Jones Industrial Average following the event. The most watched market index in the world was up 98.75 points, which says Mr Trump did not screw up.
The President-elect will be on a 24/7 watch. So far so good and let’s hope it remains that way. Undoubtedly, there will be slip ups and slips of the tongue by the most watched politician in the world. However, as long as he looks like he will get his economic agenda across the line in a decent amount of time, then stock players should be off to the races.
Go Donald!
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
