We had a big move up in Aussie stocks yesterday. The mainstream media quickly attributed it to the ‘news’ about the JobKeeper and JobSeeker extensions.
Maybe. Here at Profit Watch we already had our stake in the ground on that happening.
Part of the rally in the stock market is directly related to the amount of government debt propping everything up. You could even argue yesterday’s announcement was a ‘sell the news moment’.
Some traders are clearly thinking along similar lines because the ASX futures market gave up a chunk of the gain overnight. We’re back down to 6,073 points.
What to make of today’s stock market? Clearly I’ve been too sceptical of this rally and for too long. No doubt some of the bears out there are losing conviction and are ready to start buying.
I prefer to leave any big visions of the market at the door and just focus on stocks with catalysts due in a reasonable time frame. That’s true in any market.
But no strategy is foolproof. Any long position is vulnerable to general selling pressure and volatility.
Where could that come from? We know the virus is rampaging around the world, but the market is already looking beyond this.
What Will Bring About a Breakdown in the Stock Market
A sustained breakdown in the market would likely come from something else…an issue on the periphery…or forgotten for its urgency.
We’ve already explored one candidate this week. That’s the looming US election. We know Wall Street won’t like a Joe Biden win because of higher taxes.
But perhaps even more acute for Australia is the deteriorating relationship between China and the US. The US administration is clearly turning China into enemy no 1.
This is a giant headache for Australia. It’s Chinese demand for iron ore propping up the Australian economy right now more than anything else. That means we’re constantly under threat from one bullet to the head on this issue.
The rational response would be for Australia to immediately form a taskforce charged with diversifying our national economy and export industry to include high-value added products and gigantic investments into research and development.
It’s not the kind of thing that can happen in a week or even a year. But we desperately need something for the coming days when iron ore declines.
History shows unequivocally that the value of raw commodity exports can boom for a time but always decline in price eventually, through substitution, competition or obsolescence.
For the next few months, however, the federal government will do well to somehow keep relations with both Beijing and Washington on good terms — if such an outcome is even possible.
In the context of a US election, with Trump likely to attack China continually for the COVID disaster, it seems a big hurdle for stock investors to price up the market even more than they have.
See this from The Australian…
‘US secretary of state Mike Pompeo has called for an international coalition to counter “bullying’’ threats from the Chinese Community Party which he said has been exposed by disgraceful exploitation of the “preventable’’ COVID-19 disaster, its cover-ups and co-opting of the World Health Organisation.
‘In a hard-hitting attack on China after a day of talks with British leaders in London, Mr Pompeo said: “The Chinese Communist Party’s exploitation of the (coronavirus) disaster to further its own interests has been disgraceful. Rather than helping the world, General Secretary Xi has shown the world the party’s true face.”’
Eventually, it all must come back to earnings. That’s why August is so important. We can all do well to remember that many companies have pulled their guidance for this financial year.
August is going to show us exactly how good or bad the numbers are and what they expect for the year coming up — if they’re game enough to say.
It’s certainly not a time to be blasé.
Editor, Profit Watch
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