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I’m Seriously Expecting A Great Year For Stocks

FYI | Feb 08 2017

By Peter Switzer, Switzer Super Report

I’m expecting a seriously good year for stocks and I guess only Donald Trump could ruin it. Well, more accurately it would be Donald and Congress but I’m prepared to bet on a win for the good guys — us — and Donald as well.

The very cautious expert still won’t give me comfort that the S&P/ASX 200 index will beat 6000 this year, while the most cavalier, and I think more accurate commentators, see us trending towards 6300, though that could be them giving into me and my optimism.

Calm down Switz, calm down.

I’m not expecting much in February — it’s not a great month and while being too seasonal on stocks can be simplistic, there is a pattern of behaviour that often explains why December is the best month for stocks — call it Christmas and people spending like there’s no tomorrow.

As was the case last year, I plan to be a dip-buyer, if markets get wobbly.

CommSec’s Craig James last week gave the gold medal to December for stocks, saying “Over the last 70 years, the Australian share market has risen in December 73% of the time, lifting on average by 1.9%.”

On the flipside, I don’t think it’s a coincidence that most crashes and big market slumps show up around September and October.

And provided that nothing crazy happens in Congress, with the Fed with rate rises and with elections in France and Germany, then we could be off to the races with stocks.

I will say I am more cautious about 2018 but let’s cross that bridge when Donald has had 12 months in the saddle.

I showed on Saturday that US job creation — 227,000 jobs against 175,000 expected — was a nice omen for economic growth. Goldman Sachs tips “above trend growth” for the USA, while the global economy is expected to go to the top of the range, which is 3-3.5%.

Europe is expected to muddle through at about 1.4% but last week the Euro-zone economic data was nicely positive. Economic growth in the Euro zone was 0.5%, as expected in the December quarter, which would annualize out at 2%. Unemployment fell to a 7-year low, with annual inflation at 1.8%, a near 4-year high.

At home, a survey of 27-economists for Fairfax’s Business Day had our growth at 2.4% for 2017 but I reckon that’s too negative.

Treasury and five other economists I rate had growth at 3%, while the very credible Paul Bloxham of HSBC tipped 3.4%! Go Paul!

If he is right, my 6000-call looks really safe.

Powering my positivity for 2017 was an interesting call from Atul Lele, the CIO at Deltec, a private wealth manager based in the Bahamas.

He believes you can equate Donald Trump’s policies to a productivity turbo-charged booster.

He cited tech developments, such as battery technology, artificial intelligence, semiconductor innovations and 3D printing, as huge changes that will bolster industrial efficiency and economic growth.

“The 1990s was a productivity boom driven by technology,” he said. “All of these things are going to lead to productivity growth.”

And he threw in an intriguing last comment: “The best thing is that it’s not yet priced into the market.”

Despite the Trump rally, what he’s effectively arguing is that these tech developments alone would drive growth and share prices, but if Trump’s policies become a reality, minus he’s vindictive China trade ideas, then I could even get comfortable being a bull over 2018!

The first test will be the wash up from both the local and US reporting season where optimism prevails but we need the facts to at least equal the positive rumours about improving profits, revenue and, importantly, outlook statements.

And as a new service to you, I have collated a list of stocks that my experts on TV liked this week. I believe the rotation into banks and resources meant a lot of good companies were unfairly beaten up, so there could be some good pickings amongst this lot, so here goes:

Woodside, Rio, REA, Challenger, Vita Group, Healthscope, Altium, CSL, TWE, Ramsay, BWX, Navitas, Sydney Airport, WOW and Wisetech Global.

I’m not offering my view on these stocks but I thought the list could be a good starting point, if you are on the prowl for some stocks that the experts are pinning their reputations on.

One final point. Citi expects earnings to be up about 17% this year and here are the sectors it likes with their tips for profit growth. Resources up 82%; food and beverages up 15.1%, strangely they have retailing up 10.8%, while the building materials sector is expected to rise 7.6%.

The retailing call has surprised many, though everyone still likes JB Hi-Fi, but identifying others is slim pickings and the ones singled out I wouldn’t want to touch with the threat of Amazon hovering!

I look forward to my half-yearly catch up with Gerry Harvey (who often is a surprise package) in reporting season.

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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