Bring on November.
Just one week into the new month and the S&P/ASX 200 Index (ASX: XJO) is up 6.3% since the closing bell sounded on 30 October. The index of the top 200 listed Aussie shares is now 2.5% above its 9 June highwater mark, and at its highest level since 5 March.
And it's off to another strong start today, up 1.4% at the time of writing.
Now there's still some ground to make up.
The ASX 200 remains down 5.8% since 2 January and down 12.0% from its 20 February all-time highs.
But there are a number of positive signals indicating the Australian economy, and ASX share prices, have room to run higher.
Confidence and loans on the rise
When consumers are nervous about their future security, they tend to cut down on nonessential spending and are far less likely to take out new loans.
In a nation (like Australia) where consumer spending drives some 60% of the economy, loan activity offers a useful metric to gauge consumer confidence and likely spending patterns for the months ahead.
As the Australian Financial Review (AFR) reports, peer-to-peer lending company SocietyOne is issuing $5 million of new loans per week. That's a rise of 150% over the past 5 weeks.
SocietyOne's CEO Mark Jones, says the loan growth is "massive":
We've seen a massive increase in activity over the last four to six weeks. We are seeing a consistent trend, that we think will keep going for a number of weeks at least – because Victoria is going to come back now, so confidence will continue to improve…
We are bouncing back, and that is symbolic of the country. We are coming through this; it is getting back to normal. People are feeling OK that they can go and spend some money…
People were being quite prudent and careful, but it got to October, and people have said 'I want to do something around the house', and we have seen activity return in a big way. Through September, people came to the view their job is OK and while they've been responsible, now they can think about the things they have put off.
As for the ASX share price gains, Paul O'Connor, head of multi-asset at Janus Henderson Investors, calls it "a fairly typical relief rally" (as quoted by the AFR):
Equity markets usually bounce after big anticipated risk events, like US elections. With a number of indicators suggesting that most investors had assumed fairly defensive positioning in the run-up, a fairly typical relief rally seems to be underway here… Investors are putting precautionary cash balances back to work and unwinding pre-election hedges.
Now what?
Joe Biden has been officially declared the winner of the US presidential election. But Donald Trump remains as the 'lame duck' president until 20 January, wielding all of the power of the presidency.
Atop this, 2 seats in the US Senate will remain in doubt until the outcome of a runoff election in January. That election will determine whether the Democrats hold both Houses of Congress. This in turn will determine the likely changes in corporate and capital gains taxes, as well as Biden's ability to usher in a 'Green New Deal'.
Yes, that's all happening on the other side of the world. But what happens in the world's largest economy, and on its share markets, inevitably has a big influence on Australia and ASX share prices.
With those uncertainties in mind, BCA geopolitical strategist Matt Gertken remains cautious (as quoted by the AFR):
Financial markets first rallied and have now paused. The pause makes sense to us. Ultimately the best-case scenario of this election was always Biden plus a Republican Senate – neither tariffs nor taxes would increase… We will not go full risk-on until the critical short-run risks subside: the contested election, the fiscal impasse, Trump's 'lame duck' executive orders, and the international response.
Chris Gaffney, president of world markets at TIAA Bank doesn't give much credence to the US election, instead saying the biggest risk factor for world economies and share markets remains the pandemic (quoted by Bloomberg):
The biggest factor investors have to be aware of and the biggest thing that's going to determine returns in the short-term is Covid. It's not going to be who's in the White House, it's not going to be if we get a stimulus package or not. It's all about Covid right now.
Australia is doing exceptionally well getting ahead of the coronavirus. But the virus continues to spread at record pace in the US, Europe and much of the world.
BlackRock tips tech and healthcare shares, Scott Phillips tips…
If Joe Biden leads a divided government, BlackRock Investment Institute forecasts that tech and healthcare shares are likely to do well.
When it comes to ASX tech and healthcare shares, the Motley Fool's own Scott Phillips takes the long-term view. Over the years he's made a number of recommendations to members of his Share Advisory service.
On 23 April, Scott recommended members buy more shares in Virtus Health Ltd (ASX: VRT), Australia's leading provider of assisted reproductive services.
He cited the company's international growth potential; the fact that elective surgery, including IVF, was reopening; and that the Virtus share price, hammered after the COVID market selloff, was "valued as if it'll never recover".
Virtus' share price is up 64.8% since that recommendation.
Then there's hearing impairment innovator Cochlear Limited (ASX: COH). Scott was onto this stock way back on 26 April 2013, when he recommended it in Share Advisor.
He wrote that the company arguably had the best technology, a solid brand, and that its $100 million of research and development spend, "give Cochlear a strong market leadership position, which is hard to beat".
Cochlear's share is up 301.4% since he penned that.
Like I said, Scott takes a long-term view to investing. Which is why you'll still find Cochlear listed as a 'buy' in the Share Advisor portfolio.
