Aussie Market to Outperform the US?

Monday, 9 November 2020
Wollongong, Australia
By Greg Canavan

[4 min read]

Wow.

A lot has happened since I wrote to you last Wednesday.

At the time, Trump was the clear favourite to remain in the White House. But then, in the dead of night, large quantities of votes came in for Biden.

Trump says it’s voter fraud. He’s taking it to the courts.

The mainstream media says it’s game over. They’ve called it for Biden.

I didn’t realise the media got to say who won. But given they’ve spent four years trying to boot Trump out, it’s hardly surprising.

There can be little doubt there was widespread voter fraud in this election. That the media won’t report on it doesn’t make it less so. Project Veritas, for example, provided plenty of evidence via whistle blowers coming forward.

The point is this:

While the probability is low, there is still a chance that Trump could win. In 2000, Al Gore was president-elect for over a month. But a Supreme Court decision reversed the result on 12 December, handing the presidency to George Bush.

So, despite the media’s attempts to brainwash you, the courts will ultimately decide this election.

I’m catching up with Jim Rickards tomorrow morning to discuss the fallout from the election. We’ll have that interview ready for Wednesday’s edition of Insider.

Let’s set opinions aside for now.

What does this likely Biden victory mean for markets?

Well, the consensus opinion is that it’s bullish!

The rationale is that because Biden only just scraped in, there will be enough checks and balances to ensure that his radical agenda of tax cuts, Green New Deal spending and phasing out of fossil fuels won’t see the light of day.

For the equity market, there is nothing to worry about.

As I pointed out last week though, the bond market sees things a little differently. While US 10-year bond yields rose a little in Friday’s trading, at 0.815%, it’s hardly signalling strong growth or coming inflation.

To me, it simply looks like the stock market is celebrating another ‘goldilocks’ outcome. Falling or low yields is actually bullish for the market, in that the discount rate used to value cash flows remains very low. (The lower the discount rate, the higher the valuation for a given set of cash flows.)

But there are a couple of caveats to consider.

In its enthusiasm for a neutered Biden, is the market ignoring the fact that fiscal stimulus is still months away?

It was only last month that the market narrative was all about fiscal stimulus. It rose on ‘stimulus hopes’ and fell on ‘stimulus worries’.

Not anymore. The narrative, it appears, has shifted.

But keep in mind there hasn’t been a breakout to new highs. Last week’s move was very powerful, but it merely reversed the pre-election nervousness.

In other words, you’ve seen a lot of movement in the US indices for not much gain. Take a look at the benchmark S&P 500 Index.

The index clearly remains in an upward trend. But the conclusion from the chart is that it is still consolidating the major advance from the March lows.

So, despite the bullish response to an apparent Biden presidency, the conclusion from the charts is that it’s still in consolidation mode.  


Source: Optuma

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The NASDAQ chart is similar. It’s consolidating. Put simply, a break higher would point to a final blow off top/melt-up for tech stocks, while a break below the lower green line would suggest the bull market is over.


Source: Optuma

[Click to open in a new window]

The Aussie market, which has lagged US stocks massively in the post-corona rebound, looks a little more compelling.

As you can see in the chart of the ASX 200 below, stocks have formed a series of ‘lower highs’ over the past few months. Last week, the index popped up above resistance again. It looks like it wants to go higher, but it has struggled in this region since June.

This week will be important to see if the Aussie market can finally breakout and move higher. It’s certainly started strongly. The index is up strongly today, trading around 6,260 points, which is a new high for this move (not shown in the chart below).

This is clearly a reaction to the announcement of the Biden presidency over the weekend, suggesting that Trump’s chances of winning through the courts are slim indeed.


Source: Optuma

[Click to open in a new window]

And while the virus continues to tear through Europe and the US, Victoria is finally opening up. The rest of Australia is largely virus free. We’ve just had a big bout of fiscal stimulus. True, our important tourism industry is cactus and will be for some time. But when state borders open up as we head into Christmas, domestic tourism should at least pick up some of the slack.

Add to this the fact that the Aussie market is nowhere near as expensive as the US (due to the lack of tech exposure), I wouldn’t be surprised to see our market start to outperform in the months ahead.

In fact, the ASX 200 has outperformed the S&P 500 since August, as you can see in the chart below. It’s certainly not enough to suggest a new trend is underway, but there are enough reasons to believe it could be.

Let’s see what happens…


Source: Optuma

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The final chart I want to show you today is gold priced in US dollars. As you can see in the chart below, gold broke out of its consolidation pattern last week. It’s a bullish move and suggests the correction in the gold price (since the early August peak) is over.


Source: Optuma

[Click to open in a new window]

This week is going to be interesting. Hedges that were in place before the election look like they have been removed, which has pushed prices higher.

Will we see follow-through buying? Will equities in Australia play catch up and outperform the US?

I’ll have more on that on Wednesday, as well as Jim Rickards’ latest views on the US election.

Continue below for the ‘Week Ahead’ update from Murray Dawes. Today, Murray looks at a little SaaS company that leapt 40% after announcing a second deal with a UK NHS trust. Murray explains that this large deal shows they are gaining traction and the market is waking up to the large opportunity in front of them.

Cheers,
Greg


[WATCH]
This Stock Is up 40% Today

By Murray Dawes

 

I’ve had my eye on this little company for more than a year and this morning it had an announcement, which has seen the price leap 40% on the day.

They are involved in developing software to help digitise the healthcare system, especially hospitals and their management of patients.

It is a huge addressable market, and they are showing signs of gaining some traction. Today’s announcement is the second NHS trust in the UK that they have done a deal with which will see around $10 million of revenue over the next five years.

The stock has been in the doldrums after running 700% last year and this announcement may be the starting gun to the next leg higher.

You can jump to the analysis of the company by clicking on the three horizontal lines in the bottom right corner of the video to reveal a table of contents.

I do a review of each of the stocks I have been giving to you during these ‘Week Ahead’ updates so you can see for yourself how well my past calls have been going.

Regards,

Murray Dawes Signature

Murray Dawes,
Editor, Pivot Trader