Switzer on Saturday

Stocks fall but the beat goes on!

Founder and Publisher of the Switzer Report
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With the US stock markets in record high territories, can you be surprised that there are small pullbacks? Clearly the answer is no, and if there’s one thing we’ve learnt about the relationship of the Coronavirus with the stock market, it’s this: the trend is your friend until it bends.

If you need proof on a small scale, look what happened to travel stocks locally yesterday when Victoria went into a five-day lockdown, Dan Andrews style!

More on those stocks later. Of course, given what we’ve seen in the southern capital here this week, the important trend gets down to infections per day. Overseas it’s that, plus deaths. And since late last year, vaccination numbers will become unbelievably important.

The one trend I hope we’re never watching is the failure rate of vaccines because of an escalation of different strains of the virus! Let’s not go there.

Source: AMP Capital

This graph of new cases worldwide explains the stock market’s overall positivity, with all lines trending down.

And if you want to see the economic activity effect of beating a virus better than the Yanks and the Europeans, have a gander at this chart.

Source: AMP Capital

This is great for my long-term belief that stocks can do well in 2021 and 2022 as the economy responds to better virus data, as the blue line for Australia’s economic performance shows.

Why hasn’t our stock market done better? Well, the red and black lines partly explain that when you remember that if the US and Europe were economically rebounding like us, then the global recovery would be stronger and we’re a big exporter to the world economy.

We also have a few issues with China on the trade front and our dollar has risen from 57 US cents to 77.55 US cents (or 36%) since March 20, which is a serious headwind for our top businesses that earn a lot of greenbacks from exports.

Australian dollar

But as I have inferred, the overall trends for Australia are mainly positive for the virus, the economy and the stock market.

Back to Wall Street and the US overnight, and buyer fatigue is setting in, but not significantly. And it had to be helped by the US Treasury Secretary, Janet Yellen, saying this week that the US can return to full employment in 2022, if it enacts a robust enough relief package. “There’s absolutely no reason why we should suffer through a long slow recovery,” Yellen said on CNN’s ‘State of the Union’ program. “I would expect that if this package is passed that we would get back to full employment next year.”

And President Joe Biden is playing a big part in keeping it positive, with his stimulus and commitment to getting Americans vaccinated. His administration has secured more doses from Moderna and Pfizer, which will mean potentially 300 million US citizens will be vaccinated by July.

That’s huge for a stock market to remain positive on. And this from CNBC reinforces my view: “Between the ongoing medical and economic improvements, markets continue to expect a much better 2021 and that has supported prices,” Brad McMillan, chief investment officer at Commonwealth Financial Network, said in a note. “Fourth-quarter earnings are coming in well ahead of expectations, and analysts are now adjusting their 2021 earnings estimates upwards.”

To the local story and yep, there was a fall but why wouldn’t there be? Our market has risen 17.5% since October 2 (that’s only five months) so why wouldn’t there be professional and even amateur profit-takers out there pocketing profit? And we’re up 50% since March 23!

S&P/ASX 200 six months

Over the week, the S&P/ASX 200 lost 33.8 points (or 0.5%) to 6806.7.

Earnings didn’t over-impress (only 19% of companies have reported and 61% have seen profits rise, which is up from 36% six months ago) but the real confidence-killer was Dan Andrews’ over-the-top lockdown for Victoria, which has seen me trapped in my Melbourne office and bound to be locked up until Wednesday. So it’s going to be a Zoom week for me until mid-week and I’m praying the Victorian premier doesn’t up the ante as the week unfolds.

Dan also hurt travel stocks, with the AFR’s William McInnes telling us that “…Qantas fell 4 per cent to $4.55, Flight Centre declined 5.7 per cent to $14.14 and Webjet slid 9.6 per cent to $4.64.”

The CBA report was OK, with a 10.8% fall in cash profit but, understandably, the share price fell 2% to $86.87 after the bank avoided a share buyback, which the market was hoping to hear about.

AMP had a shocker, down 16.2% after Ares walked away from a possible $6 billion purchase of the troubled wealth manager.

Here are the best and worst performers, and it was good to see my tech favourite, Zip Co, have a good one. A possible US listing and an upcoming US investor roadshow all excited the market. Tech stocks can be exhilarating but I can’t make them core holdings because they can be inexplicably volatile! That said, I love them on the way up.

In case you missed it, Vocus rode higher on Macquarie’s Infrastructure vehicle, offering $3.4 billion for the company!

What I like

  • The Westpac-Melbourne Institute Index of Consumer Confidence rose by 1.9% in February to 109.1 – the second highest reading in seven years. The index is 14.2% above its pre-pandemic level in February 2020 and up 44.3% on the 29-year lows hit in April 2020 of 75.6 points. A reading above 100 points denotes optimism.
  • The ‘mortgager’ confidence sub-index rose by 2.6% to a decade-high of 113.4 in February. The ‘time to buy a dwelling’ index fell by 3.1% to 120.7. And the ‘house price expectations’ index lifted 6.5% to a 7-year high of 154.7.
  • Job ads, as measured by SEEK, rose by 4% in January to be up 6.5% on the year. Yesterday the National Skills Commission reported that preliminary skilled internet vacancies lifted 1.6% (or 2,800 advertisements) in January (the ninth consecutive monthly increase) to be up 11.1% (or 17,500 ads) on the year. There were 175,135 skilled job vacancies at the end of January – a 19-month high.
  • The NAB business confidence index rose from 4.7 points in December to 10 points in January (long-term average is 5.1 points). But the business conditions index fell from a 28-month high of 15.8 points to 7.2 points (long-term average is 5.3 points).
  • According to the Datium Insights – Moody’s Analytics Used Vehicle Price Index, used vehicle prices rose 35.8% in the year to January – the biggest lift in prices since the series began in 1999. Used vehicle prices also rose 4% in the first week of February.

What I didn’t like

  • Federal Reserve chair Jerome Powell said that policy will need to be “patiently accommodative” as “we are still very far from a strong labour market whose benefits are broadly shared.”
  • Nearly 40% of unemployed workers in the US have been out of work for six months, the Bureau of Labor Statistics reported on Friday, with nearly 9 million fewer Americans working now than last February.
  • The German Dax index slid 0.6%, with Chancellor Angela Merkel set to announce that Germany will extend its coronavirus lockdown until March 14.

Don’t miss this

I know it’s easy to just zoom in on the top stories of the Switzer Report when you’re busy during the week but as this is the weekend, it could be a great time to play catch up.

Have a look at some of the great money-making analysis pieces from this week just below. As I said above, the trend is your friend and electric vehicles and biotech companies are on a rising trend in a world worried about climate change and living longer.

I was interested in Tony Featherstone’s story on biotechs with upside, which included the company founded by Dr Fiona Wood, who came to fame after helping the burns victims of the Bali bombing tragedy in 2002 that claimed the lives of 202 people, including 88 Australians, with 209 injured. Fiona’s spray on skin technology was a lifesaver for many of those victims and Avita Medical grew out of her ground-breaking work and is not only on the Australian market but also the NASDAQ. The story is worth reading.

The week in review:

Our videos of the week:

Top Stocks – how they fared:

The Week Ahead:

Australia
Tuesday February 16 – Weekly consumer sentiment index (February 14)
Tuesday February 16 – Weekly payroll jobs & wages (January 30)
Tuesday February 16 – CBA Household spending intentions (January)
Tuesday February 16 – Reserve Bank Board meeting minutes
Wednesday February 17 – Overseas arrivals & departures (December)
Wednesday February 17 – Reserve Bank Assistant Governor Kent in panel
Wednesday February 17 – Skilled internet job vacancies (January)
Thursday February 18 – Labour force (January)
Friday February 19 – Preliminary retail trade (January)
Friday February 19 – ‘Flash’ Markit purchasing mangers’ index (Feb.)
Friday February 19 – ABS household impacts of Covid-19

Overseas
Tuesday February 16 – US Empire State manufacturing index (Feb.)
Wednesday February 17 – US Retail sales (January)
Wednesday February 17 – US Producer prices (January)
Wednesday February 17 – US Industrial production (January)
Wednesday February 17 – US NAHB housing market index (February)
Wednesday February 17 – US FOMC meeting minutes (January 27)
Thursday February 18 – US Housing starts & building permits (January)
Thursday February 18 – US Import & exports prices (January)
Thursday February 18 – US Philadelphia Fed manufacturing index (Feb.)
Friday February 19 – ‘Flash’ Markit purchasing managers’ indexes (Feb.)
Friday February 19 – US Existing home sales (January)

Food for thought:

“An investor who has all the answers doesn’t even understand the questions. Success is a process of continually seeking answers to new questions.” – John Templeton

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:

In an article on common investing mistakes, this week AMP Capital’s Shane Oliver shared the following chart that shows the negatives of looking at your investments too much. While positive to negative returns are about 50/50 on a daily basis, the positive outweighs the negative when looking at months, years and decades:

Top 5 most clicked:

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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.