Stock market: Good week at the office but can it be sustained?

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Well it wasn’t enough to write home about, but that’s exactly what I’m doing, so a 1.8% climb in the S&P/ASX 200 index for the week was the best performance for this time period since the last week in March!

The best bit of data this week was the Westpac consumer confidence reading going positive and the dollar with a 78 US cents handle on it is better than an 81 cent one.

Consumers have been lagging businesses and their confidence and if the little Aussie shopper can start doing the right thing, then my optimistic calls on the economy should work out.

Around the world, the US and German stock markets made all-time highs and in the latter’s case the improving outlook for the EU economy should set the scene for more stock market positivity out of Europe. Well, that’s provided the Spanish can keep their Catalonian brothers and sisters from seceding.

Away from the positives for local stocks and lower iron prices have taken a bit of the wind out of the resources sector’s sail. That said, mining was up 0.1% for the week, while the consumer discretionary sector put on 4.4%.

Story of the week had to be the Accor Group’s offer to buy out Mantra’s stable of hotels. The 20.1% rise shocked me along with the takeover offer but the company’s share price has been all over the place lately and every time I was asked about the group I always argued it look well-placed to do well but not this well.

Platinum Asset Management is another that has come good after being in the sin bin for too long and the 10% gain this week reinforces my view that the worst is behind the company.

And while on turnarounds, Bellamy’s being up 32% was staggering but only the brave could have kept believing in this company’s story. Of course, if you were a recent speculator on the stock you’d be on good terms with yourself but I doubt many have the sustenance to dollar cost average this sucker such that you’d be happy today!

We’re still in going nowhere land but I liked AMP’s Shane Oliver’s take on the “sweet spot” we look to be in. “This is still a seasonally volatile time of the year for shares, North Korean risks remain high, Trump related risks remain and Wall Street is overdue for a decent 5% or so correction, which would affect other share markets,” he wrote on Friday. “However, beyond short-term uncertainties, we remain in a sweet spot in the investment cycle – with okay valuations particularly outside of the US, solid global growth and improving profits but still benign monetary conditions – so we remain of the view that the broad trend in share markets will remain up. This should eventually drag Australian shares up from their range bound malaise.”

Hope springs eternal!

What I liked

The Westpac/Melbourne Institute survey of consumer sentiment rose by 3.6% in October, after a 2.5% lift in September and the index now stands at an 11-month high of 101.4 (long-term average 101.7). A reading above 100 denotes optimism.
The NAB business conditions index rose from +14.1 points to +14.3 points in September. The business confidence index rose from +5.4 points to +7.4 points. The rolling annual average business conditions index was at a 9-year high of +13 points.
The measure of business profitability rose from +14.8 points to a 9½-year high of +16.9 points.
The number of loans (commitments) for home owners (owner-occupiers) rose by 1% in August, showing housing bust talk is BS. The value of all home loans rose by 2.1% in the month and is 7.6% higher over the year. The proportion of first home buyers in the market increased strongly in August, representing 17.2% of loan commitments – a four year high.
Dwelling starts (commencements) rose by 1.2% in the June quarter. Currently, 213,919 homes are being built across the country. A record 64,470 apartments are being built in NSW.
The IMF has lifted its global economic growth forecast for 2017 from 3.5% to 3.6% and lifted the 2018 forecast from 3.6% to 3.7%. The Australian economy is tipped to grow by 2.9% in 2018, which is good enough but their 2017 ‘guess’ of 2.2% will be proved wrong!
The September US Federal Reserve minutes revealed that while the majority of officials remain concerned about persistently low core inflation, underlying strength (particularly employment) in the US economy means that “many participants thought that another rate increase later this year is warranted”.
US producer price inflation for final demand rose by 0.4% in September to an annual rate of 2.6% – the largest gain since February 2012 on rising gasoline prices.
Quarterly earnings results from JPMorgan and Citigroup were not great, with these two banks managing to beat profit and revenue estimates despite recording a drop in trading revenue.

What I didn’t like

MBA mortgage finance applications in the USA fell for a fourth consecutive week. Applications were down 2.1% for the week ended October 6.
The NFIB business optimism index eased from 105.3 to 103.0 in September but hurricanes can knock confidence around.
This Catalonia distraction – the EU doesn’t need this with the economy on the mend.

One more like

Why does Wall Street keep on rising? Because of daylight saving, the NYSE closes at 8am our time so I fly a little blind on Wall Street’s actual close. But again at 5.25am as I write this, the Dow is up 37 points. It seems to just creep up every day. Why does it do this?

First, there isn’t a big enough scare factor out there to give US stock markets the 5% plus pullbacks they look like they need.

Second, the Fed doesn’t look like it’s going to spoil the party by taking away the stimulation of low interest rates too quickly.

And finally, the US earnings outlook for the September quarter is tipped to be good. “People are generally expecting a strong earnings season,” said Tom Martin, senior portfolio manager at Globalt. (CNBC)

Earnings season has gotten off to a good start, with 87% of companies that have reported topping bottom-line expectations, according to Nick Raich, CEO of The Earnings Scout. “The good news is the number of companies currently beating estimates, and the margin by which they are doing so, is running at a clip well above what these same 31 companies have recorded, on average, over the past three years,” Raich said in a note to clients. (CNBC)

“The bad news is the rate of 3Q 2017 vs. 3Q 2016 earnings and sales growth has slowed from last quarter, and as more companies report, the growth rates will drop more,” he said.

If Donald gets a tax plan approved, we’ll join the party on a lower Aussie dollar.

The week in review

These stocks look good but pray the Trump tax plan is passed! I explain why economists and fund managers are staying positive about the next 12 months.
Paul Rickard talks about why Rio’s decision to offer an off-market buyback will be welcomed by SMSFs.
Australian investors have several avenues into the airline industry. James Dunn reveals two aviation stocks to follow.
In Buy, Sell, Hold – What the brokers say, Lifehealthcare Group and South32 both saw a downgrade.
And in the second Buy, Sell, Hold – AMP was upgraded, while Amcor was in the not-so-good books.
Among this week likes and dislikes are a medical device company, a travel outlet and health care facility.
With the domestic market struggling for growth, Charlie Aitken explains why he thinks Aristocrat could be a star performer this year. Find out why!
Who says traditional media is dead? Tony Featherstone looks at two companies that are bridging the gap between old and digital.
Did you know it’s possible to transfer shares you own to your SMSF and claim a tax deduction for the value transferred of up to $25,000? Graeme Colley explains.
NAOS Asset Management’s Robert Miller chose small cap financial services company CML Group (ASX: CGR) for this week’s Professional’s Pick.

Calls of the week

I made a call that Aussie stocks can and will head higher rolling into 2018!
Charlie Aitken said he believes Aristocrat will be one of the star performers on the ASX this year.
Paul Rickard said that SMSFs in pension and other low rate taxpayers should accept the Rio buyback, while high rate taxpayers should not even bother opening the envelope and just throw it in the bin.

Top stocks – how they fared

What moved the market?

The US stock market reached record highs, while both consumer and business confidence ticked up.
Sydney’s median house price fell 1.9% in the three months to September, the first decline in almost two years, according to Domain Group. The national median price fell 0.5% – its steepest drop in six years.
The share price of Mantra Group reached a 17-month high on Thursday high after it received a $1.2 billion takeover offer from Paris-based Accor Hotels.
The price of Bitcoin, reached a record high on Friday. Bitcoin surged to greater than US$5,600.
Chevron became the second oil and gas major to pull out of a big drilling program in the environmentally sensitive waters of the Great Australian Bight, but the company says the decision has been taken on purely commercial grounds.

The week ahead

Australia

Monday October 16 – Lending finance (August)
Monday October 16 – Tourist arrivals & departures (August)
Tuesday October 17 – Reserve Bank Board minutes
Tuesday October 17 – Weekly consumer sentiment ANZ
Tuesday October 17 – New vehicle sales (September)
Tuesday October 17 – Speech by Reserve Bank official
Thursday October 19 – Speech by Reserve Bank official Bullock
Thursday October 19 – Employment/unemployment (Sept)
Friday October 20 – CommBank Business Sales (Sept)

Overseas

Monday October 16 – US New York Fed manufacturing
Monday October 16 – China inflation (September)
Tuesday October 17 – US Import & export prices (Sept)
Tuesday October 17 – US Industrial production (Sept)
Tuesday October 17 – US NAHB housing market (October)
Tuesday October 17 – US Capital flows data (August) expectations
Wednesday October 18 – US Housing starts (September) to 1.17m
Wednesday October 18 – Chinese National People’s Congress policies
Thursday October 19 – China monthly data (September)
Thursday October 19 – US Philadelphia Fed index (October)
Thursday October 19 – US Leading index (September)
Friday October 20 – US Existing home sales (September)

Food for thought

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”

– Charles Darwin

Last week’s TV roundup

When should parents start thinking about SMSFs for their kids? And is it better to have a personal or corporate trustee? Tim Howard of BT Financial Group answers these questions and more.
Malcolm Turnbull or Alan Jones – who has it right over the east coast gas crisis? Andrew Main of Switzer Daily joins the debate to make sense of it all.
The importance of cyber security is becoming increasingly crucial. To discuss how to prevent and respond to cyber threats, Michael Shatter of RSM Australia joins Super TV.
For a wrap on the latest broker’s Upgrades and Downgrades, FN Arena’s Rudi Filapek-Vandyck joins Super TV.
Can Australia’s 26 years of economic growth continue? Paul Bloxham of HSBC joins Super TV to share his thoughts.
Why has the Aussie market under performed so far in 2017? To discuss this and more, Bell Direct’s Julia Lee joins Super TV.

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 Quintis (QIN), with its short position increasing by 3.72 percentage points to 8.23%. Meanwhile, Select Harvests (SHV) saw the biggest decrease of 1.61 percentage points to 11.73%.

Charts of the week

China has now passed New Zealand as our top source of tourists. China & Hong Kong together passed NZ in tourist numbers in September 2015.

Recent Switzer Super Reports

Thursday, 12 October 2017: New Opportunities
Monday, 09 October 2017: Banking on Trump

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