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Will Trump's Syrian raid see the stock market bomb today?

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Another Donald Trump curve ball has been thrown at the stock market, with the Syria air strikes by the US, UK and French forces. Matters weren’t helped when Russia’s Vladimir Putin predicted “world chaos” if more missile strikes happen — that can’t be good for stocks either!

Donald’s after-strike tweet finished with “mission accomplished”, which echoes George W. Bush’s conclusion after the Iraq invasion, when the September 11 tragedy set the Americans on a course to first find Osama bin Laden and then sort out Saddam Hussein.

The invasion was successful but managing the peace and coping with the arrival of ISIS, which seemingly sprung up out of the whole affair, makes those two words — “mission accomplished” — a little worrying for the future.

Right now, the Aussie stock market is expected to open down 6 points but this weekend’s Syria development could increase the “worried” factor for the market.

All this comes as the Dow Jones Index dropped 122 points (or 0.5%) to 24,360 on Friday, following the first week of reporting season that came in a little underwhelming.

There is a belief by expert analysts that this US company profit show-and-tell affair will show earnings were up around 18% for the first quarter of 2018, which would be the best rise in seven years but the start so far, especially by big US banks, has been good but not great.

Wall Street could be caught out by its own optimism trap, which expected great results. If they do turn out to be only good, then those who bought US stocks on the basis that great returns were coming, might then opt for a bit of selling!

It’s early days but, along with Donald’s decisions and dramatic tweets, US companies will control our market’s destiny.

It comes when the likes of Leonore Hawkins of Tematica Research in the States is a little unnerved: “After last year's record low volatility, the market is on track this year to have 100 or so trading days with at least a 1 per cent range in the S&P 500,” Ms Hawkins also said, “The years in which this has last occurred? 1974, 2001, 2002, 2008 and 2009 – I'd say that's not exactly indicative of a bull market.” (AFR)

In an ideal world for stock investors here in Australia, the Yanks have a great reporting season and our economic data continues to point to an improving economy.

This week we see our latest jobs report card, with economists expecting another 25,000 jobs created. This is one of the economy’s best numbers and given slightly less impressive business and consumer confidence numbers last week, which were still good but not great, our stock market needs to believe that our economy is, like the Reserve Bank says, on the up.

Outside of Australia, we’ll see China’s latest economic growth numbers and they will be important to note, especially with all this Trump-created trade war rhetoric around at the moment.

We send a third of our exports to China, so great growth there will be good to great for us.

In summary, the optimistic scenarios out there (US company earnings plus the US economic outlook plus our economic outlook along with the global economic outlook) all look good for stocks this year.

Only a few weeks ago, the likes of Citi thought there were only 3.5 reasons out of 18 to sell stocks, which implies the bull market still has legs. However, since then, we've had a lot of Trump tweets on trade and now there’s this Syrian crisis to deal with, so expecting the unexpected for stocks doesn’t look too wild and wacky, does it?

I’d like to say, “In Donald we trust” but that could only be seen as ironic, so I’ll avoid saying it.

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Published: Monday, April 16, 2018


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