Looking into the future
What the rest of the year may hold XJO
Prepare for severe turbulance.
Up 44 points for August
The Australian market was up over 44 points for the month of August and again hit a succession of new highs for the decade throughout the month.
However, it was a month of extreme volatility resulting in wild 142 point swings in the market. Such volatility often accompanies markets when reaching new highs, as the market psychologically adjusts to becoming comfortable with its new level.
Solid economic and corporate data was once again undermined by abstruse issues such as domestic political intrigue and potential expanding International trade war concerns.
KEY ECONOMIC DATA
- Continued slide in base metals.
- 48% of earnings beat market expectations
- 83% of corporations reported earnings higher than 12 months ago
- 89% of ASX listed companies have increased or held dividends constant
- China PMI Manufacturing beat expectations.
DOW JONES IND AVG 25,461 – 25,964 : UP 503
DJI 12 MONTH CHART
The month of August saw the Dow initially creep up, and then drop off and retest the important 25,000 level.
However from the 15th on, once again the sheer weight of phenomenal economic and corporate data compelled the market to override continued fears around political issue and a potential trade war, resulting in a rally from 24,966 to a peak of 26,122, with the S&P 500 reaching an all-time intraday high on the 21st, before succumbing to trade war and political concerns, finishing the month at 25,964.
The phenomenal corporate earnings season continued, with around 79% of S&P 500 companies beating market expectations. This earnings season growth has actually outpaced the market, which is a very rare event.
This stellar corporate earnings season coupled with simply breathtaking macroeconomic data, such as the GDP dramatically improving from 2.2% at the start of the year to 4.2%, and the US unemployment rate falling to its lowest level since 2000, at 3.9%.
The positive picture surrounding the underlying U.S economic growth is literally the best in a generation and is yet to be fully represented in share prices.
Key Developments in the Month of August
- US unemployment rate 3.9%
- Trade War escalation with China, expanding to $200b of tariffs
- Continued positive domestic Economic Data
- Expected likelihood rate rise in Sept, and a further Interest Rate increases in December.
- EU trade dispute resolved.
OIL STOCK UPDATES: Massive upside potential
WTI Crude – Gained $2.14 from $67.66 – $69.80
The WTI Oil price GAINED $2.14 for the month of August, although it could be fair to describe the month as volatile with unknowns such as Iran’s reaction regarding pending sanctions and the impact upon supply, against a backdrop of concerns over rising trade war tensions and emerging market troubles impacting upon demand.
These macro factors coupled with US crude Inventories and stockpiles unexpectedly jumping resulted in the WTI Oil price fluctuating over $5 during the month of August.
Key Oil Price Influences
- Venezuelan production continued to decline
- Moving into the business end of Hurricane season, potentially impacting upon production in the Gulf of Mexico
- US Crude inventories are unseasonally high
- West Texan Permian basin has physically reached “pipeline” capacity
- Oil giant Total has completely withdrawn from Iran suggesting US sanctions will have an impact beginning in November
|LOOKING INTO THE FUTURE: 2018 AND BEYOND
|XJO 15yr Chart
|Furthermore, when one looks at the market in the context of Real terms (after inflation), the All Ords index is actually 27% below its 2007 peak. Although it should be added that using “real terms”, is contentious when valuing a market.