What a difference a week makes! It was market meltdown stuff after the Glencore Tuesday. However, that weaker-than-expected jobs number in the US has experts tipping the Fed will delay its first rate rise until next year, so up we go again!
And the Fed minutes out this week, which indicate concerns about too low inflation and the global economic slowdown, seems to confirm this conclusion. That said, New York Fed President William Dudley told CNBC that a rise is possible this month! Now that seems odd.
Our market has done five days in a row on the upside and I think you’d know how pleased I’d be, as someone who has been telling you all that last week’s sell off was a gross overreaction. And I should add, in case you missed it, US commentators call October “the month of bottoms”, which I know sounds gross but it’s good news, after a really tough time for us stock players since the middle of the year.
Mind you, there still could be one or two more tests of our nerves over the month and the next two weeks will be vital, as the Yanks look at third quarter earnings. The majority of forecasters is expecting a downbeat reporting season but Morgan’s Michael Knox thinks it could surprise to the high side, while the December quarter will be much better.
Now remember, markets don’t wait until they see good news, they move ahead. Therefore, if earnings do beat expectations, the Fed stays on hold, China produces better economic data (as it has been introducing stimulus policies in recent months) and our run of economic readings remains better than expected, then we could have plenty of juice to power up a big drive home over November and December. I don’t have to mention a Santa Claus rally, oops I did, but I should say many of my experts, even the more negative ones, think we’ll see some nice market presents later this year.
But earnings will be crucial. If the Yanks have some more slower-than-expected economic data and earnings disappoint, the critics of quantitative easing will start making life easier for hedge fund managers, who love negativity, volatility and anything but market tranquility!
The market optimism this week has been helped by the spike in oil prices, with Brent Crude up 3.4% to $US53.05 a barrel on Thursday alone. And it comes as the oil rig closures numbered nine for the week, which is a direct response to the continuance of low oil prices.
Saudi Arabia and OPEC will love to see these developments.
What’s my view on what lies ahead?
In the whole scheme of things, the first small US rate rise shouldn’t matter. The more important issue will be how fast rates rise but one thing is for certain, Janet Yellen and her Fed buddies really listen to the noises out of financial markets and it’s something I wish our Reserve Bank would do as well.
The big watch for me this week will be earnings and I really hope that US companies surprise on the high side.
What I liked
- Our stock market up from 5052 on Monday to end at 5279.7 – a 4.5% gain for the week!
- The Dow had the strongest week since February.
- Alcoa CEO Klaus Kleinfeld on China: “You have to put it into perspective. It’s not like falling off a cliff.”
- In the US, new claims for unemployment insurance fell by 13,000 to 263,000 in the latest week, below forecasts near 274,000.
- US home prices increased by 6.9% in August, compared with 12 months ago and the MBA Mortgage Applications index lifted to 534.2 – the highest level in eight months.
- The number of car sales locally for the 12 months to September was a record of 1,143,109!
- ANZ job ads were up 3.9% and have now risen 14 out of the past 16 months.
- The Performance of Services index fell 3.4 points but it was from a 7-year high to 52.3 in September – still above 50 indicating expansion.
- Over the past year, a record 1,165,600 tourists came to Australia from China and Hong Kong, up 16.4% over the year. Our number one tourist group, New Zealand, totaled 1,286,900 visitors over the past year, but was up just 4.9%.
- The International Monetary Fund’s outlook for global growth – see details below.
- The IMF said the Chinese economy is expected to grow by 6.8% in 2015 and 6.3% in 2016, which suggests that the slowdown will not be as bad as China-shorters would have us believe!
- Not having much I didn’t like this week!
What I didn’t like
- Alcoa, always first out of the blocks of the big US companies to report, coming out with earnings of 7 cents a share, when analysts were tipping 13 cents! That’s a big miss and I hope it’s not an omen for the earnings season.
- The Oz dollar at 73.23 US cents this morning and the rise this week was huge – up 3 cents- as the chart below shows.
[1]
Let’s hope this Fed-inspired optimism can be sustained, while economic and earnings readings makes this positivity long-lasting!
By the way, on August 25, when our stock market lost 4%, the headlines read “60 billion wiped from ASX as shares slump”. This week, $66 billion has been wiped back on to ASX shares. You’re only going to read that kind of headline here in the Switzer Super Report [2]. My mates in the media aren’t proficient at doing good news.
Top stocks – how they fared
[table “120” not found /]The week in review:
- Our Super Stock Selectors [3] this week shied away from resources companies, with Santos, Origin and AWE Limited all ending up in the ‘dislike’ column. On the other side of the coin, the experts were hungry for food stocks like Retail Food Group and Bega Cheese. Other stocks that were in the good books this week include ASX and Mirvac Group.
- And the brokers seem to agree, with miners, including Iluka, Origin and Whitehaven Coal, amongst nine resources companies to be downgraded by brokers on Monday [4].
- Paul Rickard [5] reviewed our model portfolios and while we followed the market down in September, both our income and growth portfolios have managed to stay ahead of the ASX200 total return index by 1.09% and 2.44% respectively.
- I told subscribers [6] my buy level for BHP ($21ish), and why I’m still happy buying banks and ETF’s like STW on dips.
- James Dunn told us five ways the pros deal with volatility. One of the most important points: do nothing! Read the other four here [7].
- Charlie Aitken explained [8] why he’s bought more Vitaco Holdings on market, after investing in the company during its IPO earlier in the year.
- And Tony Featherstone outlined [9] the case for buying legal firms like Shine Corporate and Slater & Gordon, which are now trading at fair value after being hit earlier in the year.
What moved the market?
- Gains by energy and resource stocks provided a boost to the local market (go, BHP!).
- The RBA kept rates on hold [10] at a record low 2%, which briefly buoyed the Aussie dollar to over US72 cents.
- Chinese stocks commenced trading mostly higher following their “Golden Week’’ holiday.
- And Germany fell on the back of lower than expected exports data, which fell 5.2% (seasonally-adjusted) in August from the previous month.
The week ahead
Australia
- Monday October 12 – Lending finance (August)
- Monday October 12 – Credit and debit card lending (August)
- Tuesday October 13 – Speech by RBA official
- Tuesday October 13 – NAB Business survey (September)
- Wednesday October 14 – Consumer confidence (October)
- Wednesday October 14 – Building activity (June quarter)
- Thursday October 15 – Employment report (September)
- Thursday October 15 – New car sales (September)
- Friday October 16 – Financial Stability Review
Overseas
- Tuesday October 13 – China Trade balance (September)
- Wednesday October 14 – China inflation (September)
- Wednesday October 14 – US Producer prices (September)
- Wednesday October 14 – US Retail sales (September)
- Thursday October 15 – US Consumer prices (September)
- Friday October 16 – US Industrial production (September)
- Friday October 16 – US Capital flows (August)
Calls of the week:
- The International Monetary Fund said [11] they expect our global economy to expand by 3.6% in 2016. Unfortunately, the global forecast for this year was downgraded from 3.3% to 3.1%.
- Workers at Air France took it upon themselves [12] to literally tear their management to shreds after the company announced a re-structuring plan, including job cuts and redundancies. The airlines human resources and labour relations chief, Xavier Broseta, has clearly seen better days – his shirt and jacket were ripped off by the lynch mob!
[12]Source: Reuters, ABC
- Charlie Aitken said the newly listed health company, Vitaco (VIT), is his funds small cap growth stock play, and is likely to join the ranks of Blackmores (BKL), Bellamy’s (BAL) and Capilano Honey (CZZ) in the next few months. Read his article here [8].
- And VW announced that over 77,000 diesel vehicles sold in Australia are fitted with the dodgy cheating emissions tests software. The managing director of VW Australia, John White, has said that all those affected will be contacted.
Food for thought
Perpetual optimism is a force multiplier.
Colin Powell – former US secretary of state (this wasn’t me – I promise!)
Last week’s TV roundup
Marcel Von Pfyffer [13] from Arminius Capital joins the show to talk about whether or not we’ll be seeing a Christmas rally this year.
James Dunn [14] and I explain where we think stocks are headed for the rest of the year in our live webinar for October.
Adam Muston [15] from UBS Global Asset Management tells us why Exchange Traded Funds are the way to go for overseas investing.
The deputy treasurer of ING Direct, Peter Casey [16], caught up with me to talk about the RBA’s recent monetary policy statement.
Stocks shorted
ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table also shows how this has changed compared to the week before.
This week Myer’s short position reduced by 4.97%, suggesting investors have a more optimistic view on the retailer, while AWE Limited’s short position increased by 3.13%, suggesting more investors are banking on a pull back in their share price over the coming weeks.
My favourite charts
Jump for joy on job ads!
Zooming car sales
Top 5 most clicked on stories
- Peter Switzer – Confused about the stock market? This is what I’m doing [6]
- Charlie Aitken – Finding the next golden health stock [8]
- Rudi Filapek-Vandyck – Buy, Sell, Hold – what the brokers say [17]
- Penny Pryor – Super Stock Selectors – CSL and ANZ [3]
- James Dunn – 5 ways to deal with volatility – the professional way [7]
Recent Switzer Super Reports
• Thursday, 8 October 2015: The Golden Goose [18]
• Tuesday, 6 October 2015: Say What? [19]