[table “338” not found /]

Another financial year down and it’s again an UP year!

I know some of us might have felt the pain of the banks and Telstra but if your diversification was in place I expect it has been at least an OK year.

The gain for anyone who has a portfolio akin to the S&P/ASX 200 index was 13%, including dividends. And the following chart delivered to me by my colleague Paul Rickard while we were toasting the end of the ‘year’ last night, shows that my commitment to being long stocks since 2009 has been the right strategy.

Spare a thought for those doomsday merchants and one newsletter that has been predicting a recession and stock market Armageddon for three years, maybe more!

Mind you, I know one day these guys will crow that they got it right and I admit that I will be cautious in 2019, looking for signs that the weight-challenged opera singer is about to mount the stage for the final scene. However, I suspect that the rest of 2018 could continue to be good for stocks, though I know the next few months are bound to bring some worrying moments.

We still have to deal with US inflation and Fed worries, trade war fears, uncertainty around Italy, renewed China and emerging market worries and falling home prices and the Royal Commission. And don’t forget there’s living with that unusual US President, Donald Trump, and he’s got a mid-term election in November, which could be both good and bad for stocks.

On the subject of good market vibes, Wall Street kept it positive overnight, with the Dow up 0.23% with the likes of Nike up 11% after a great earnings report. But who could be surprised with just about everyone walking around in those swoosh-adorned Nike joggers everywhere you go nowadays?

Despite this good news overnight, the US market had a negative week with trade concerns still spooking investors. How this potential trade war plays out will be vital to where stocks head between now and the end of the year.

“For the stock market, the rest of the year could be quite exciting, in both a positive and a negative sense,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “I expect the U.S. equity markets to end the year with moderate appreciation from levels at the end of December – around 3,000 for the S&P 500 as a base case.

In the nearer term, the Trump administration’s trade policies have the potential both to disrupt supply chains and increase costs, which would certainly affect financial markets.” (CNBC)

This trade spat has really hurt Chinese stock markets lately. Before Friday’s noticeable bounce-back (with the Shanghai Composite up 2.2% to close at 2848.31 after four straight days of losses), it was not good reading for China stocks supporters.

This is how Forbes described the losses for China from the Trump trade tussle: “MSCI China (MCHI) is down 6.74%, FTSE China (FXI) is down 10.45%, Deutsche X-Trackers China A-Shares (ASHR) is down 16.8% and the market’s favourite China play, tech stocks, are down just under 2% as represented by the KraneShares China Internet and E-Commerce (KWEB) fund. Meanwhile, the S&P 500 is up 1.6% year-to-date.”

So let’s head back home and see what last week brought us.

The S&P/ASX 200 on Friday closed down 20.8 points (or 0.34%) at 6194.6 but we ended the quarter up 435.2 points (or 7.6%), which wasn’t too bad considering the headwinds from the Trump trade tornado and the Royal Commission.

It was a wild swinging quarter for the index, which dropped to its lowest level for the year on April 3, before reaching a 10-year high on June 21, hitting 6249 before closing at 6232.1.

Tech-lovers did well as the SMH pointed out: “Wisetech Global advanced 66.2 per cent to $15.66 for the quarter, reaching a record high price on June 21 on the back of upgraded profit guidance during early May. Xero shares advanced steadily for the quarter, rising 34.6 per cent to $45.01 while IRESS rallied from a poor first quarter to close 26.9 per cent higher at $12.04.”

This quarter’s effort has to be lauded, with the Royal Commission clobbering some of our favourite financial stocks.

Just look at AMP, whose shares fell 28.7% to $3.56 during the quarter. It even dropped out of the ASX20 index! And what about Telstra?

The SMH again: “Telstra also fell through the quarter, following multiple network outages, broker downgrades and major job losses announced at its investor day last week. The telco closed the quarter 16.6 per cent lower at $2.62.”

But can the good stocks news continue? And remember, I’ve stuck my neck out that we could see 7000 this year, which is a huge call, even for me. Well, check this out from Morgan Stanley’s regional strategy team. This mob had a long standing underweight position on our market but has upgraded us to equal-weight within the regional country quant process. Morgan Stanley said in a note on Thursday that the local market now has the chance to outperform its regional peers. “Australia’s exposure to late cycle plays in the Materials and Energy sectors can now also carry up sized income qualities which will be attractive for investors.”

What I liked

• In the 12 months to May 2018, the Budget deficit stood at $12.8 billion (less than 0.7% of GDP) up from $12.1 billion in the year to April – the smallest rolling annual deficit for nine years.
• Job vacancies rose by 5.7% to a record 236,000 in the three months to May. Job vacancies are up by 24.1% on a year ago – the strongest annual growth rate in 7½ years. And vacancies in the previous quarter to February were revised up to 5.4% or 223,300, from 4.4% or 220,900.
• Engineering construction work done rose by 2.8% in the March quarter to stand 13.7% higher than a year ago. A month ago, it was estimated that engineering construction was up by 1.5% in the quarter. Engineering work done for the public sector rose by 6.3% in the March quarter. Over the year to March, a record $35.8 billion of work was done for the public sector. Excluding resources, engineering work yet to be done stands at $44.2 billion, just below record highs. Outstanding road and railway work are both at record highs.
• Despite the weekly ANZ consumer confidence reading falling this week, consumer views on current economic conditions (for the next year) rose by 5.1% to 116.5 points last week – the second highest level on record.
• For the year ending April 2018, there were 63.1 million passengers, an increase of 2.6% on the year ending April 2017.  With passenger traffic increasing at a faster rate than capacity, the industry wide load factor increased from 79.5% in April 2017 to 79.6% in April 2018 – the highest level in eight years.
• US new home sales rose by 6.7% to a 689,000 annual rate in May (forecast 667,000).
• The final estimate for US economic growth in the March quarter was 2% (forecast 2.2%). The measure of inflation (the core personal consumption deflator) was up 2.3% on the year, as expected.

What I didn’t like

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6% to 121.4. Confidence is up by 6% over the year and above the average of 113.9 since 2014 and the average of 112.9 since 1990.
• Private sector credit (effectively outstanding loans) rose by 0.2% in May after a 0.4% rise in April. It was the slowest monthly growth in 16 months. Credit was up 4.8% over the year – equaling the slowest rate in four years. Investor housing finance was flat in May, with annual growth easing to a record low of 2% but this is what monetary officials wanted in order to cool down housing, so it’s not all bad.
• In seasonally-adjusted terms, new detached house sales fell by 4.4% in May to stand 12.8% down on the peak in December and stand 14.1% lower than a year ago. This looks like an unintended consequence of cooling down the hot house market.
• Durable goods orders in the US fell by 0.6% in May (forecast -1.0%). Excluding defence goods, orders fell by 1.5%. And excluding transport, orders fell by 0.3%. Wholesale inventories rose by 0.5% in May.
• European stock markets made heavy weather of the trade war talk and especially as a consequence of proposed US tariffs on German cars.
• From its high in January, the Chinese share market has fallen around 22% and the Renminbi has fallen around 6% from its April high – that’s a worry.

Beaut backdown Bill

In case you missed it, our Federal Opposition Leader Bill Shorten did a great backflip. As the ABC put it: “[He] succumbed to party pressure and backed down on his plan to scrap company tax cuts for medium-sized businesses.”

I gave it to Bill in an article I wrote for Switzer Daily the other day about his promise to repeal the company tax cuts for businesses with turnovers between $10 million and $50 million. But he gets a thumbs up for being man enough to realise he pulled the wrong rein with his “captain’s call”, which his team disagreed with.

Beauty Bill!

The Week in Review:

• Does sensible investing tell you should buy Telstra or not? Find out what I had to say in my article this week.
• There’s a new kid on the ASX block. Find out what Paul Rickard thinks of the Viva Energy float – New Viva Energy IPO will suit yield investors.
• Tony Featherstone added to last week’s list with Take some profit on these 4 tech stocks.
• Charlie Aitken issued a word of caution on Ramsay Health Care: Why I remain short.
• James Dunn named took a look at The next big thing from across the ditch.
• In the first Buy, Hold, Sell – what the brokers say, brokers were decidedly negative with way more downgrades than upgrades.
• And in the second Buy, Hold, Sell – what the brokers say, Credit Corp Group was luck enough to get an upgrade.
• In this week’s Hot Stocks, our chartist liked a big healthcare provider.
• Plus, in this week’s Questions of the Week, Paul Rickard answered questions on hybrids and Automotive Holdings Group (AHG).

Top Stocks – how they fared:

What moved the market:                                                                                   

• Oil prices – OPEC agreeing to maintain production limits and US enforcing sanctions on Iran
• More end of financial year hubris as investors got on the ASX train
• Santos letting investors know it would start paying dividends again
  

Calls of the week:

• Qantas announcing Richard Goyder would be its next chair
• Commonwealth Bank announcing it was splitting off its wealth management and mortgage broking arms.
• My call to reconsider Telstra, but now it’s one for the speculator

 The Week Ahead:

Australia

• Monday July 2  –  CoreLogic home value index (June)
• Monday July 2  –  Manufacturing purchasing manager surveys (June)
• Monday July 2  –  Job advertisements (June)
• Tuesday July 3  –  Building approvals (May)
• Tuesday July 3  –  Reserve Bank Board meeting
• Wednesday July 4  –  Retail Trade (May)
• Wednesday July 4  –  International trade (May)
• Wednesday July 4  –  Services purchasing manager surveys (June)
• Wednesday July 4  –  New vehicle sales (June)
• Thursday July 5  –  Reserve Bank official speech

Overseas

• Sunday July 1  –  China Caixin manufacturing (June)
• Monday July 2  –  US ISM manufacturing (June)
• Monday July 2  –  US Construction spending (May)
• Tuesday July 3  –  China Caixin services (June)
• Tuesday July 3  –  US Factory orders (May)
• Tuesday July 3  –  US New vehicle sales (June)
• Thursday July 5  –  US Minutes of Federal Reserve meeting
• Thursday July 5  –  US ADP employment (June)
• Thursday July 5  –  US ISM services (June)
• Thursday July 5  –  US Trade balance (May)
• Friday July 6  –  US Non-farm payrolls (June)

Food for thought:  

“Success is getting what you want. Happiness is wanting what you get.” – Dale Carnegie 

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.

Chart of the week:

 Look how rich we are!

Top 5 most clicked:

1. Does sensible investing tell you should buy Telstra or not? – Peter Switzer
2. New Viva Energy IPO will suit yield investors – Paul Rickard
3. Buy, Hold, Sell – what the brokers say – Rudi Filapek-Vandyk
4. Take some profit on these 4 tech stocks – Tony Featherstone
5. Ramsay Health Care: Why I remain short – Charlie Aitken

Recent Switzer Super Reports:

Monday 25th June: An Aussie battler

Thursday 28th June: Different strokes

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.