Another week of no real surprises, including not much of a move for stocks on Wall Street again to take this market considerably higher or lower but the tendency has been skewed to the downside. However a lot of this negativity seems to have little rhyme or reason.

We’ve now copped four weeks of losses for stocks, despite a 26-point gain on the S&P/ASX 200 Index, which hit the closing bell at 5682.10. That means we were down 0.2% for the week.

But it wasn’t all mildly bad, with the dollar down to 79.45 US cents yesterday, though overnight it crept back to 79.6 US cents. This sucker won’t give us the depreciation we have to have easily, though it was 81US cents on Thursday, in case you missed it.

I quizzed AMP Capital’s Shane Oliver on why our market would give up 55 points on Thursday after Janet Yellen indicated that the Fed would start selling bonds and securities it accumulated over the QE period. In the US, bank stocks went up with the anticipation of higher interest rates, which is seen as a plus for financials. And given our market’s excessive exposure to this sector and how often the sector trends on Wall Street translate into similar moves here, the sell-down of our market was head scratching. (Our financials did rise on Friday, possibly indicating our market smarties are slow learners.)

Sure, the index is nothing more than the consequence of individual stock moves and gold and other miners were hit by a jump higher of the greenback, but why wouldn’t our currency-sensitive stocks have got a kick from the lower Oz dollar?

No rhyme or reason looks like a good excuse and this from the US shows how market players are trying one thing to make money and then taking profit before buying what they were selling two weeks ago: “It looks like the money’s switching back over to energy. Financials have recovered a little bit as bonds have softened,” said JJ Kinahan, chief market strategist at TD Ameritrade. (CNBC)

JJ was referring to financial stocks paring earlier losses, which means there was re-buying after reselling and so on and so on… As I said, no real rhyme or reason but I guess these guys have to do something when they go to work!

In fact, I’m not getting why better economic outlook stories seem to mean little for stocks. OK, I must admit I’ve never seen economists so split on our economic destiny but they’re all upgrading their views. The rate-cutters are quietly becoming “on-hold” guessers until late 2018 or even late, wait for it, 2019!

The economics teams at NAB and ANZ are now tipping the first rate rise will be mid-2018 and the most courageous, Paul Bloxham of HSBC, is calling the first quarter of 2018 as the time for the first rate rise!

Why? Well, he thinks we’ll be growing at 3.3% by year’s end and other signs, such as rising business investment, higher profits and even better wage outcomes, will be starting to show up.

ANZ’s economic forecasters now see two rate rises over 2018 so that might be important information for would-be rate fixers.

One view that most economists seem to be signing up to is that the Yanks could see three to four rate rises next year, which has to push the greenback up and our dollar down. Those who are thinking about investing overseas to get the currency windfall might need to get more serious about it.

Stocks the experts liked this week on TV

Simon Cohn (Investors Mutual): Ansell, Integral Diagnostics, SCP (Shopping Centres Australasia).

Rudi Filapek Vandyke (FN Arena): CSL & Aristocrat Leisure.

What I liked

• Employment rose by 122,700 in the three months to August after a gain of 150,500 in the previous three months. It was the biggest six-month gain in jobs in records stretching back almost 33 years. And over the past year, employment lifted by 328,500, the strongest annual gain in almost two years.
• Economy-wide spending grew modestly in August, according to the Commonwealth Bank Business Sales Indicator (BSI). In trend terms, the BSI lifted by 0.3% in August, after similar growth in July. This was good but not great.
• The Bureau of Statistics reports that Australian home prices rose by 1.9% in the June quarter to stand 10.2% higher over the year.
• The weekly ANZ/Roy Morgan consumer confidence rating rose by 4.6% in the latest week to a 7-week high, after falling 3.8% in the previous week. Are the good job numbers sinking in?
• The minutes from the September 5 Board meeting show policymakers continue to expect stronger economic conditions over the coming year.
• Financials in Oz had a positive week, up 0.8% over the week. The punishment of our financials has been overdone.
• The Fed’s decision to undo the easy money policy, which says good things about the US economy going forward.
• Good news for stocks such as BT and CYBG, as sterling goes higher. Regular readers know Charlie Aitken has been big on UK-exposed stocks for some time.
• The Fed’s decision and here’s a summary: “The Fed maintained the target range for the federal funds rate at 1.00-1.25% as expected. Eleven of 16 policymakers expect one more rate hike in 2017. Fed projections suggest three rate hikes in 2018. Median forecasts for GDP (economic growth) were lifted in 2017 from 2.2% to 2.4%, while inflation forecasts were trimmed from 1.7% to 1.5%. The Fed will start unwinding its US$4.2 trillion holdings of securities in October by initially cutting $10 billion each month from the amount of maturing securities it reinvests.” (Craig James, CommSec)
• The Philadelphia Federal Reserve index rose from +18.9 to +23.8 in September (forecast +17.2). The leading index for the US economy rose by 0.4% in August (forecast +0.2%).
• Shares in Portugal rose 1.6% after the country regained its investment grade rating. Standard and Poor’s lifted Portugal’s credit rating from BB+ to BBB-, which is another nail in the GFC coffin but this kind of news makes me relive the Grexit days of mid-2015!
• The UK Bank of England Governor Mark Carney said that the central bank would most likely raise rates in coming months but only gradually, which is another sign that we’re heading back to economic normalcy and it’s likely to be at a sensible pace.

What I didn’t like

• This excessive fear about a central bank conspiracy to raise interest rates. If the USA and Europe start raising rates in 2018, the RBA could easily hold fire to send our dollar down to get the economic growth that will help earnings and wages, which then would help the case for a rate rise here.
• Iron ore prices dropping 8.4% over the week after a 3% slip the week before, though with Fortescue’s share price down 7.8% for the week, we might not be far off another buying opportunity for this new good yielding stock! That said, I never buy miners for their dividends, no matter what they promise!
• Talk that the successful Kiwi Government could get rolled in today’s election. The Conservatives formerly led by John Key were a world-class government and deserve another term with the former Treasurer in charge – Bill English.

Another overdue like

In a blow for level playing fields, London deemed Uber unfit to run a taxi service on Friday and stripped it of its licence to operate from the end of next week, in a major blow to the US firm and 3.5 million users in one of the world’s wealthiest cities. (Reuters) I love competition but it has to be fair to all players and Uber might do what taxis do (and maybe better) but it’s not governed by the same rules that have been designed to protect the public and fill the public purse, which we are all supposed to benefit from. If every profession decided to flaunt the rules for price-cutting competition reasons, then we, as a society, could be in for a few future shocks.

The week in review

• With reporting season out of the way, I take a look at how geopolitical events are impacting the markets.
• Paul Rickard answers the two top questions we receive from investors and shares the “best” mid- and small-cap funds.
• James Dunn reveals six companies with 6%-plus forecast yields, including Telstra.
• Roger Montgomery takes a look at the banking sector and provides a recommendation on each of the Big Four.
• In the first Buy, Sell, Hold – what the brokers say, Healthscope was in the good books while Myer copped a downgrade.
• And in the second Buy, Sell, Hold, IAG was upgraded while TPG Telecom was in the not-so-good books.
• Among this week’s likes and dislikes are a vet, a super market, an automotive parts provider and a department store.
• According to Tony Featherstone, there are only a few food stocks that offer value despite a fast-growing Asian appetite for diet upgrades. He suggests three of them.
• Charlie Aitken offers his views on the post-Brexit GBP plus provides a stock recommendation.
• Bega Cheese has emerged better than its peers from a difficult period for the Australian Dairy sector, says ST Wong of Prime Value in this week’s Professional’s Pick.
• Paul Rickard responds to reader queries about investing in global tech and Ramsay Health.

Top stocks – how they fared

What moved the market?

• Global stock markets reached record highs on Monday with the MSCI All Country World Index hitting a new peak of 487.48 as the focus shifted to meetings by the Federal Reserve.
• The Fed announced it would be trimming its balance sheet and rolling back quantitative easing measures used to battle the GFC, with upward pressure on interest rates. I discussed this with AMP Capital’s Shane Oliver this week.
• Global debt was predicted as under reported by around $16 trillion because traditional accounting methods don’t include foreign exchange derivatives.
• CBA sells CommInsure Life and Sovereign to AIA for $3.8 billion.

Calls of the week

• Analysts at Deutsche Bank warned that the Federal Reserve’s balance sheet unwind next month could be the catalyst for the next great financial crisis.
• Charlie Aitken threw his weight behind Clydesdale PLC (CYB) and predicts an upgrade in the near future.
• The Reserve Bank said the year ahead looked positive for Australia’s economy, while the OECD warned Australia that an interest rate rise could trigger a housing market correction.

The week ahead

Australia

• Tuesday September 26 – Weekly consumer confidence
• Tuesday September 26 – Speech by RBA official
• Wednesday September 27 – Population data (March quarter)
• Thursday September 28 – Finance & wealth (June quarter)
• Thursday September 28 – Job vacancies (August quarter)
• Thursday September 28 – Speech by RBA official
• Friday September 29 – Private sector credit (August)
• Friday September 29 – ACI Construction monitor (Spring)

Overseas

• Monday September 25 – US National activity index (August)
• Tuesday September 26 – US Case Shiller home prices (July)
• Tuesday September 26 – US Consumer confidence (September)
• Tuesday September 26 – US New home sales (August)
• Tuesday September 26 – Speech by US Federal Reserve chair
• Wednesday September 27 – US Durable goods orders (August)
• Wednesday September 27 – US Pending home sales (August)
• Thursday September 28 – US Economic growth (June quarter)
• Friday September 29 – US Chicago purchasing managers
• Friday September 29 – US Personal income (August)
• Saturday September 30 – US Chinese purchasing managers (Sep)

Food for thought

Nobody made a greater mistake than he who did nothing because he could do only a little. Edmund Burke

Last week’s TV roundup

• Could we see a stronger 2017/18 for the Aussie economy? To share his views on this, interest rates and more, HSBC’s Paul Bloxham joins Super TV (broadcast on Monday 18 September, 2017).
• New fee disclosure rules could make the true cost of super more transparent. So what will this mean our funds? Jeff Bresnahan of SuperRatings joins Super TV to explain all (broadcast on Monday 18 September, 2017).
• Graeme Colley of SuperConcepts joins Super TV to discuss how easy it is to transfer shares into your super fund (broadcast on Wednesday 20 September, 2017).
• Magellan Financial Group has $50 billion under management and has recently created a new fund with some unique characteristics called the Magellan Global Trust. To discuss, CEO Hamish Douglass joins Switzer TV.
• And in part 2 I ask Hamish about how he built the business (broadcast on Wednesday 20 September, 2017).
• While the education sector has had a few challenges of late, 3P Learning share prices have been bucking the trend. CEO Rebekah O’Flaherty joins Super TV to talk Mathletics and more (broadcast on Tuesday 19 September, 2017).
• When the Federal Reserve announced it would be tidying up its balance sheet, US stocks rallied but the ASX lost points. What gives? AMP Capital’s Shane Oliver joins Super TV to discuss (broadcast Thursday 21 September, 2017).

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 shows how this has changed compared to the week before.

This week, one of the biggest movers was Healthscope, with its short position increasing by 1.02 percentage points to 10.7%.

Chart of the week 

Source: Bloomberg, Federal Reserve, AMP Capital

The chart above shows a dot plot of expected interest rate hikes by the Federal Reserve Bank compared to predictions by the market in 2017. The Fed’s plot points to one more rate increase this year, although it’s well above market expectations.

Top 5 most clicked stories

• James Dunn: Five 6% yields plus Telstra
• Paul Rickard: The “best” mid- and small-cap funds
• Peter Switzer: How wise is it to expect the next move for stocks is up?
• Roger Montgomery: You can bank on this
• Charlie Aitken: Global exposure: a bank to watch

Recent Switzer Super Reports

• Thursday 21 September – Food in focus
• Monday 18 September – Economy and geopolitical events

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.