Feel that gush of wind? That’s the world letting out a big, relieved sigh.
Apparently, the outlook for the US stocks isn’t so bad after all.
The Nasdaq was up nearly 3% at the close of US trading. Aussie stocks should bounce today.
Watch BHP and Rio…
Amongst this October turmoil, THE most intriguing thing is iron ore. It’s now US$76 a tonne. It’s having a juicy old bull run.
It doesn’t appear to give two figs about higher interest rates or even the trade war.
The two big Aussie miners are riding this mini-boom and getting a kick from the currency as well. If this continues, it could turbocharge their earnings.
But you wouldn’t know it from the share price action.
When the panic is on, the selling can get indiscriminate. Algorithmic trades probably exacerbate these moves, as does stop-loss selling.
Selling pressure begets more selling, regardless of the underlying businesses.
It’s time like this when you need to be clear in your mind whether you’re trading or investing.
Sell-offs are buying opportunities if you’re bullish long-term…
Perhaps Fortescue Metals [ASX: FMG] are giving us a taste of what’s to come. Yesterday, they confirmed they’re pressing on with the $500 million share buyback they announced earlier in the month.
The company’s chief exec says the stock is below book value and they’re happy to scoop it up at these prices.
I can’t say I’m doing the same on FMG, but it shows the management is pretty comfortable about the outlook for the market in general.
One Company Critical to the 5G Roll-Out in Australia
If there’s one market event to learn about for 2019, this is it! Free report reveals what the FT calls a ‘game-changer’ for humanity. Plus, get a free subscription to Australia’s newest, most forward-looking daily investment email, Profit Watch. Enter your email address below and click ‘Send Me My FREE Report’.
And let’s not forget the other big winner here…
It’s the federal government.
Stonking coal and iron ore prices are going to help pour revenue into the Treasury’s coffers. That’s already happening thanks to a strong economy, according to the Australian Financial Review.
This is pure firepower for the government to try and salvage its chances at the next election.
One wonders if we’re going to see this unexpected windfall put to work in reviving first home buyer incentives to prop up the ailing housing market.
Those, of course, do nothing for affordability but might settle the nerves and win votes from the younger demographic – a group Labor’s been courting for a long time.
Watch this space.
The mystery for the Aussie market is the banks. They’ve had market share ripped away via the crackdown on investor and interest-only loans.
They now face uncertain remediation costs. There could even be a further increase in the bank levy.
How much of this is priced in and how it can turn around is not something I can tell you with any great confidence.
But for the Aussie market to really lift, we would need both the big miners and the banks showing strength. We haven’t seen that for a while.
The show ain’t over yet: America is booming
I happened to be listening to the 3AW breakfast show this morning. The host – Ross Stevenson – pondered why Australia’s market has not exceeded the peak in 2007. That’s in contrast to the USA, where stocks have boomed.
But you already know the answer. Relative size aside, North American companies create far more value, overall, and therefore have grown earnings on a far bigger scale.
The US leads the world in research and development. Australia lags behind horribly. This is unlikely to change anytime soon.
It’s also why US stocks can continue to rise from here, and will most likely keep outpacing the Aussie market.
Because price action aside, business is booming in America…
US stocks are on track for their biggest year in profit growth for a decade. 78% of S&P 500 companies that have reported so far have beaten estimates.
Of course, the market is preoccupied with next year, but the earnings hurdle is not as high.
Take Boeing [NYSE: BA], for example. It just raised earnings and revenue forecasts for the year. Traffic and cargo demand are on the up.
It also has a US$491 billion backlog of orders. That doesn’t really sound like the stuff of a coming recession to me.
Suffice to say, I’m not prepared to write off this bull market yet.