Category Archives: Market Reports

The Confidential Report – June 2019

US Economy

The opinions of the investors of the world are averaged and expressed in the various indexes of major world markets, especially the S&P500. They have recently (just a month ago) pushed the S&P500 index to a new record high (2945 on 30-4-19). And the data coming out of the American economy is confirming their optimism. The US economy grew by 3,1% in the first quarter of 2019 – easily beating the average forecast of 2%. A good chunk of that growth came from private consumption expenditure (PCE) – which shows that consumers are spending. This is not surprising given the better-than-expected results from the S&P500 companies and the extremely low unemployment in America. At the same time, the US economy added 263 000 new jobs in April month – easily beating analysts’ forecasts of 190 000. This brought the unemployment rate down to 3,6% – its lowest level in 50 years. Hourly earnings growth was up 3,1% year-on-year at an average of $27,77.

So with all this good economic news flying around why is the S&P falling? The answer is quite simply Donald Trump. His aggressive attitude towards America’s traditional trading partners and particularly China is beginning to unnerve investors. More and more analysts are starting to talk about some kind of recession. The Trump tariffs are starting to bite.

A trade war makes no economic sense from any perspective – any economist will tell you. Everyone ends up losing. Aside from the tariffs on $200bn worth of Chinese goods, Trump last week announced a 5% tariff on imports from Mexico, effective 10th June 2019 and which would grow to 25% unless the Mexicans stopped illegal cross-border immigration into America. At the same time Trump has threatened around $200bn worth of additional taxes on Americans and put the United States-Mexico-Canada agreement (USMCA) into jeopardy. These factors are causing some investors to decide to sell out and await developments. In our view, Trump is feeling more and more pressure from the Democrats and the rising possibility of an impeachment. He is cornered and potentially dangerous. But can he really derail the economic boom in America? We don’t think so. In our view, the escalation of the trade war is probably temporary and in a few months’ time it will be history. It is far more likely that Trump is trying to use his executive powers to gain political points – or at least he is trying to distract Americans from his mounting personal problems. Read More

The Confidential Report – May 2019

US Economy

Seven months ago on 20th September 2019, the S&P made a new record high at 2930 – and from that level began a correction. Corrections are completely normal and even healthy events which occur regularly during the course of a bull trend. This ten-year bull trend began on 6th and 7th of March 2009 when the S&P made an intra-day low of 666.79 on 6th and then made its lowest close at 676.53 on 7th.

The fall in the market, before this bull market began, had been caused by an American banking crisis which later became known as the “sub-prime crisis” when Lehman Brothers collapsed. What followed was an inordinate monetary policy stimulation of the world economy during which more than $12 trillion worth of quantitative easing (QE) was done to try to avoid a repeat of the Great Depression of 1929.

Ten years later we can say that the QE was eventually successful and the world economy has finally turned around – but not without some very scary moments such as the Greek crisis during which it looked as though the entire European Union was in danger. Read More

The Confidential Report – April 2019

Wall Street

On Friday 22nd March 2019, Apple announced their results to the December 2018 quarter. Turnover was down 5% at $84,3bn while quarterly earnings per share (EPS) were up 7,5% at 418c. 62% of the company’s sales came from outside the US. iPhone sales were down 15%, while sales from other products were up 19%. It also warned that the first quarter of the 2020 financial year would be weak because of poor sales in China. The market didn’t like these results and forecasts and the share price fell by 7%. This in turn dragged the entire S&P down by 1,9% as other tech stocks fell in sympathy. Donald Trump’s “trade war” with China was obviously partly to blame. The drop in the S&P500 index took it just below support at 2813 – but this was an over-reaction and the S&P has bounced back closing at 2867 last night. The resistance level has become the support level – which is common in this type of upside breakout. Now, we expect the S&P to move up strongly towards its record high of 2930. It is just over 2,1% below that level now. And, ultimately, we expect it to exceed that high and the great bull market, which has been in progress for ten years, to continue upwards. Consider the chart:

S&P500 Index September 2018 to April 2019 – Chart by ShareFriend Pro (Click to enlarge image)

Read More

The Confidential Report – March 2019

US Economy

American GDP growth in the 4th quarter of 2018 was 2,6% – slightly higher than the 2,4% consensus forecast, but noticeably lower than the third quarter’s 3,4% or the 2nd quarter’s 4,2%. This still gives America an average GDP growth rate of about 3,1% for 2018 – which may not sound like a lot, but given the size of their economy (more than double the second largest economy in the world) it is very significant. It is enough to drag the rest of the world economy out of recession and into growth.

Obviously, this must be seen in the context of Trump’s substantial once-off tax cuts which are probably beginning to wear off now. It must also be seen in the context of the massive monetary policy stimulation of the previous ten years.

All of this is playing out in the stock market as can be seen in the chart of the S&P500 index:

S&P500 Index September 2018 to March 2019 – Chart by ShareFriend Pro (Click to enlarge image)

Here you can see that, following its record closing high of 2930 which occurred on 20th September 2018, the S&P entered a corrective phase. That correction was made worse by Trump when he effectively shut the US government down for five weeks in December. The US shut-down resulted in a “V-bottom” because as soon as investors came back from their year-end holidays they bid the market back up steadily. Read More

The Confidential Report – February 2019

The American Economy

The Federal Open Markets Committee (FOMC) in America raised rates on 19th December 2019 by 0,25% to take them to 2,5%. This is the ninth 0,25% increase in rates since rates began to rise in January 2016. This came after rates were stable at a record low of 0,25% for seven years from January 2009 – following the 2008 sub-prime crisis. The steady, gradual increase in US interest rates since the beginning of 2016 means that US Treasury Bills (T-bills) are becoming more and more attractive to investors relative to the government bonds of other countries, including South Africa. This tends to cause funds to flow out of emerging economies like ours and into first world countries. The steady rise in US rates also means that the FOMC has confidence in the strong recovery of the US economy. This has positive implications for the base and precious metals which South Africa exports. Of course, it also puts pressure on the rand – which directly impacts the fuel price and, in the medium term, the inflation rate. Read More