ARTICLES

Quo Vadis?

23 December 2019 By PDSNET

As the year draws to a close, we should consider what is likely to happen next year on world markets. Undoubtedly, world markets will continue to follow what happens on Wall Street so we will confine our discussion to this market. Once the traditional fear of October month was behind us, the S&P500 began making a series of new record highs. This is not unusual. Over the festive season it is quite normal for there to be a “relief rally”. If the market did not crash in October, it is extremely unlikely to crash over the year end. The thoughts of investors turn to the new year and the promise which it holds. Consider the chart:

S&P500 Index June to December 2019 - Chart by ShareFriend Pro

You will notice that the current upward trend is accelerated. From breaking above the previous record high of 3025 (made on 26-7-19) this index has risen by 166 points or 5,4% in less than 2 months. The 5,4% to reach that level of 3025 took almost 7 months to achieve. This acceleration indicates a growing confidence in the future of the US economy. However, as a word of caution, nothing in the markets moves in a straight line – so you should expect some sort of correction in the fairly near future. The immediate and official cause of the current rally is Trump’s relatively benign stance on the trade war with China. Ostensibly, investors are optimistic about a trade deal with China which will take this uncertainty out of the mix – or they have become blasé about Trump’s erratic and unpredictable twitter outbursts. Underlying this is the continuing thrust of the massive monetary stimulation that followed the 2008 sub-prime crisis. The impact of that is carrying world markets ever higher as confidence levels rise, with companies and individuals benefitting from the most powerful monetary stimulation in history. Of course, 2020 is a US election year and Trump’s main advantage is going to be the unprecedented strength of the US economy and the concomitant rise in the S&P500. Almost every American has a “401k plan” which involves investing in the share market through a tax-free savings account similar to our Tax Free Savings Account (TFSA). So, most Americans will credit Trump as the incumbent with the significant improvement in their financial well-being and prospects during 2019 (even if he had relatively little to do with it). If a democratic president is elected in November 2020, no one is quite sure what will happen to the economy or the stock market – and hence to their savings. You can be quite sure that Trump will leverage that uncertainty as much as he can while taking credit for the current boom. Of course, the impeachment process will not see Trump removed from office. In the senate Republicans will stand behind Trump and, by run-up to the election, the failed impeachment process may well turn to his advantage. Already republicans are painting it as a baseless partisan move. Outside of America, nobody really likes Donald Trump, but if he continues in office (as could well happen), we can probably look forward to an extended bull trend on the S&P500. Once again, we urge you, as a private investor, to focus on what will happen rather than on what should happen. One final alert - over the festive season, volumes tend to be reduced as more and more fund managers go on holiday. Some of the big institutions will take advantage of this low-volume environment to “window dress” their portfolios and ensure that they make their 2019 performance look as good as it can. Window dressing goes on in all markets because it is easy for large institutional investors to drive the prices of their largest holdings up at year-end. They simply implement a program of heavy buying just before the market closes. Usually, these last minute gains are quickly reversed in the new year, so if you are considering selling an institutional blue chip, the 31^st December 2019 could be the best moment.  

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

Share this article:

PDSNET ARTICLES

Shoprite

In their article on 10^th April 2024, Checkers sweeps Pick n Pay as it opens 5 new stores in one day., Businesstech drew attention to the fact that Shoprite had taken over five stores from Pick ‘n Pay on the East Rand. Pick

WeBuyCars

In a few days’ time, Transaction Capital (TCP) will unbundle and separately list its second-hand car sales company, WeBuyCars (WBC). The main benefit of this is to release the value of WBC into the hands of its shareholders. When the listing is complete, on 11^th April 2024, WBC will have a total of 417,2m shares in issue which are expected to

Gold and Harmony

In our last Confidential Report, published on 6^th March 2024, we drew your attention to the fact that the US dollar price of gold was about to break up through a critical resistance level at $2060. Gold has now moved up to $2166 so this observation provided an opportunity for private investors to make a significant capital gain, either in actual gold

Reverse Takeover

At the end of October 2023, Mix Telematics (MIX) was a relatively small fleet management company with a market capitalisation of just R2,3bn listed on both the JSE and the American NASDAQ. Its shares on the JSE were wallowing at a low of 380c. This compares with its competitor, Karoo (KRO), also listed on the JSE, but which was at the time, more

Rare Opportunity

You may not have been aware of it, but last week, between Monday and Friday, there was an opportunity to make an 80% profit on your capital. This opportunity occurred because of insider trading on a little known and traded share called Quantum Foods (QFH) in the poultry and animal feeds business.

Generally, the poultry business is

Excessive Bullishness

On Friday last week, the S&P500 index posted yet another new record closing high, but this time just one point higher than the previous day at 5088. This means that the index, which measures the progress of the 500 largest companies on Wall Street, has been climbing without a significant correction for nearly four months. Consider the chart:

Lessons from Transcap

As a private investor it is very important that you study what has happened in the past and learn from it. The progress of Transaction Capital (TCP) has provided us with an excellent opportunity to examine and learn from a complete cycle in an institutional favourite share. We can examine the entire cycle and see how to profit from it. In this regard, it is important

Sasol

Sasol is a company originally established in September 1950 by the National Party, to counter the possibility of petrochemical sanctions against the old South Africa. Essentially, Sasol used South Africa’s enormous coal reserves to generate about one third of its fuel requirements. Subsequently, Sasol became involved in the chemical industry which now accounts for about

4Sight

The world has, in the last twenty years, entered what has been characterised as the 4^th Industrial Revolution (4IR). It has been described as “... the biggest structural change of the past 250 years — a transformation of scale, scope and complexity unlike anything humankind has experienced before.” In simpler terms, 4IR refers to the digital convergence of

The Great Bull Resumes

On the 12th of June 2023, we published an article, headed "Bull Trend?". In that article we suggested that, after a 25% correction, the great bull market on the S&P500 which began in March 2009 was still intact and would, in time break to a new all-time record high, above the high