US is not the centre of the universe, at least not for the Aussie market

While US President Donald Trump would like to think that the US is the centre of the universe, and that he is in control of everything, the real story may be a little different. Don’t get me wrong, the US is important in world politics and economics, but there are many other factors that affect our market including Europe and Asia.

We have seen how positive news on the China trade talks has caused Asian markets to rise. This has also had an impact on the Australian market, which has experienced a spectacular rise of over 14% since its last major low on 20 December.

The rise shows that we are far more aligned to the fortunes of the Asian economies than we are with US. Therefore, we should be looking more at Asia for the medium to longer term direction of our economy and market rather than the latest Trump tweet.

China and the US will eventually do a deal, as they both need each other for economic stability and growth. In any negotiation, we know that both sides have to give something to get the deal done; so long as one or both are not too unhappy with their concession, then everything will get back to normal.

China has slowed but is still growing faster than many other economies. When the ink on the trade deal with the US has dried, this will stimulate Asian economic growth and should keep our market running in the right direction for the most part of this year and more than likely in the next few years to come.

We have seen world markets subdued over the past week with the Nikkei, New Zealand and Australian markets all in positive territory although only just. The Argentina, Seoul and Tel Aviv exchanges have performed the worst down around 1.5 per cent.

The big end of town has performed better with the S&P/ASX 20 up over 0.5% this week, while the Small Ordinaries was flat, and the Emerging Companies and Mid Cap 50 indices are in negative territory. This could be a sign that the mood has changed, as long bull runs are led by the big end of town. While it is a little too early to read the mood, the signs are certainly there.

As for the sectors, Healthcare was the big winner up over 2.5% last week, while Financials, Information Technology and Communications were all up slightly. Consumer Staples was the worst performer down around 1.5 per cent and Materials around 1 per cent, which is really nothing in what has been a rather flat week.

It is not surprising the Ramsay Healthcare is the big mover of the week up nearly 6% after releasing a good report. Other top performers include Flight Centre, Resmed and CSL, all of which rose over 3%. This week’s worst performers were Fortescue down over 5% after a stellar rise in the past month, with Adelaide Brighton and Oz Minerals also down heavily.

So what do we expect in the market?
After a fall on the All Ordinaries of over 1 per cent last Tuesday, I started to think that the down move I was expecting had started, however, on Wednesday and Thursday it rose back up to near where it started for the week. We have now seen our market rise for nine weeks and over 14% without a pullback, which is something it has not achieved since the low in November 2012 when our market rose for 17 weeks and 18%.

The current move is running much faster in time and price than in 2012, which is not sustainable, therefore our market will fall away soon.

Investors need to expect a fall to around 6,000 points and possibly slightly below to around 5,800 points. Right now, is the time to sit back and just enjoy the ride rather than jump in thinking you will miss the boat.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online at www.wealthwithin.com.au