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How come all of this great stock market news?
Being a market optimist, at least for the moment, it has been encouraging to see the recent turnaround in the fortunes of the stock market.
Back in 2014 I set my sights and hopes on seeing the S&P/ASX 200 index – our most watched market index – at 6,000.
In April of last year it hit 5,996.4 – an intraday high – but it could not hold that level.
So I missed my target by a measly 3.6 points and then we had to cope with Grexit, Glencore concerns and then recession fears in the early part of 2016 and so we sunk to a low of 4,706.7 on February 10, but it has been uphill ever since!
Let’s look at the positives
That’s a 16% comeback and it rests on a surprising good run of positive news.
To explain why, I basically argue that bad news has been ‘trumped’ by good news, if you can pardon the significant and timely pun.
Here’s my list:
Our stock market hit an 11-month high by the end of the week.
That was seven days in a row of rises but we made it eight by Monday.
We broke the important psychological level of 5400 to finish at 5429.6 on the S&P/ASX 200 index.
The banks were back in favour after over a year of being shorted by smarty pants hedge fund managers who are now scampering to avoid losing money.
Chinese economic data gave it to those China-haters out there, with GDP up 6.7% (with the consenus forecast at 6.6%) but there were doubters with lower guesses.
The landslide win for Japanese PM Shinzo Abe’s party in the Upper House and the assumption that a big spending program would ensue because of the strength of the victory.
The S&P/ASX 200 ended trade 0.3% higher (or 18 points) to 5429.6 on last Friday (up 3.8% for the week), its strongest gain in three months. The All Ordinaries ended 0.3% higher to 5510.1.
The US stock market indexes – the Dow and S&P 500 – both beat their all-time highs.
The Russell 2000 index, which is a key broad, small cap index, is trading above important technical levels creating a strong bullish technical pattern. It’s all-time high is 1290 and it’s now at 1205.31. If this record is broken, the techies see it going to a huge 1400!
US bank earnings have beaten market expectations and banks’ share prices there were up 5% for the week.
US companies are reporting better than expected.
US retail was up 0.6% in June, versus the economists’ collective guess of 0.2%.
And it’s not just the American consumer looking good but along came a 0.6% increase in industrial production for June, which is the best gain since July 2015 and the consensus forecast was a low 0.2%.
Finally, US bond yields have started to head up and that’s something you have to cheer about because this bond market’s behavior has been warning all of us to be very, very careful. I have been asking a lot of my bond market experts about how often the bond market gets it wrong. Now they are biased, being current or ex-bond people but their answer was what I expected: “Not very often!” Looking at the story I’ve bullet-pointed above, this could be one of those times.
It’s good news week
Making me more comfortable about this rally, which will have another testing time in the future, is this observation reported on CNBC from Bank of America/Merrill Lynch (BAML): “Investors last week poured the most cash into global equity funds since October last year and the second highest amount ever into emerging market bond funds.”
Cautiously optimistic
That’s a big win for the optimists and bulls but I guess we have to ask the question – can this positivity last?
Well, it’s always a guess but I liked this, also from CNBC: “Investors have shunned equity funds year-to-date, but are now stampeding into the asset class for fear of missing out,” BAML’s global strategy team, led by Michael Hartnett in New York, wrote in a note titled ‘Bear Capitulation’ on Friday.
I love the idea of bears having to capitulate and I hope Michael is on the money.
Hoping for the best
I want to see this better than expected reporting season in the US continue in the next few weeks. And then in August I want us to kick in with some better than forecasted results from out top companies.
As Kath from Kath and Kim used to say “I feel it in me waters” that the run of bad news is being consistently trumped by good news but I do hope Donald Trump is trumped by Hillary Clinton, for market positive reasons.
Preparing for the rest
In the crazy world we live in I expect some curve balls to test out this current market optimism, but if that happens I’m sure I will be telling you that this is just another buying opportunity.
Despite my critics’ view on me being too optimistic, one day I will turn bearish but in all honesty I just can’t see the evidence for it, just yet.
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
