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Interest rates, Donald Trump and Feng Shui
What a week! And to think we went in with a bit of central bank anxiety but the pointy-headed smarties got their messaging right and up went stocks.
I resisted writing this piece until week’s end because I wanted to see what the Bank of Japan (BoJ) and the US Federal Reserve would do to stocks. Well, I guess they didn’t make a wrong move according to the stock market, with the S&P/ASX 200 index up solidly for the three days after the BoJ gave its best shot.
Also read: Some Aussie property markets correcting, others booming
In case you missed it…
The BoJ didn’t cut further into negative interest rate territory and the Fed didn’t raise rates (in case you missed that as well) so this tendency to want to buy stocks resumed. However, there’s a new trend or two emerging that you need to be aware of and I’ll get to that in a moment.
More challenges out there
These two central bank decisions were two potential events that could’ve helped or hurt our stock prices but it was more a case of the former rather than the latter. And that’s a good thing as there are still a few more challenges out there that our investments have get over to climb that notorious wall of worry, which is a bull stock market.
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Oil data coming up
Coming up next week, there’s an OPEC and non-OPEC meeting in Algiers, which at this stage looks promising, with rumours that an agreement on production controls looks possible. These guys aren’t really reliable but one thing’s for certain, we don't want to see oil prices plummet again, as this really hit the stock market over 2015 and early 2016.
Low oil prices are OK in the current band of $US40-50 a barrel but really low oil prices, such as under-$US30, is a worry for big US companies and it undermines investment, business confidence and stock markets.
Source: Nasdaq.com
Donald and the Italian challenge
Another challenge is an Italian referendum that could spell problems for the Italian Prime Minister, the Italian banking system and the European Union, which could really rattle stock markets. There’s also the threat of Donald Trump that Wall Street is likely to overreact to on the negative side in November, if he gets up against Hillary Clinton. More on this curve ball later. And of course, there’s bound to be a December interest rate rise by the Fed, which again could scare stock markets.
The Italian challenge is harder to work out but I’m gambling the EU survives the drama, oil prices don’t slide, Hillary wins but even a Donald victory won’t be as bad economically as the market might be speculating.
A buying opportunity
Wall Street will sell off but it probably would be a buying opportunity, as there are many who argue that the Senate and the House will put controls on any of the loopyness of Donald, if the Yanks were crazy enough to give him the top gig!
All these market hiccups will still be buying opportunities, as I like the economic fundamentals that seem to be on the improve — that’s why the US is considering a rate rise.
What’s happening to resources?
In recent times, resource stocks are back in favour with analysts, and a company such as BHP-Billiton has been put into the “long portfolio” of a major, foreign investment bank, which is a good sign. This is partly linked to a slightly better outlook for China, though it’s not anything crazily positive — just better than some negative calls around earlier in the year.
Growth stocks like the miners are gaining friends and their share prices are being bided up. BHP is now seen as a $25 stock in the not-too-distant future, even though it’s now only $21.43. This is miles better than the $14 price tag we saw earlier this year.
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The interest rate outlook
Right now, central banks are leaning against further rate cuts and excessive monetary expansion and governments are being pressured to increase deficits via bigger infrastructure spending. This should enhance economic growth worldwide. And that’s also good for resources.
Meanwhile the rising interest rate scenario, which will still be a slow rise process, will help bank balances sheets and this is why bank shares have been picking up.
I expect to see more sell offs between now and December but I also see stocks sneaking higher in net terms. My technical analysts are in agreement with me on this as well.
Add in Feng Shui
One concern, which became worse overnight for me, was the prediction of Master Feng that the energy says Donald Trump will win on November 8!
Feng has got it right for 18 years since he has got into the president-picking stakes and we might ignore him at our peril.
Only in America…
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
