What a week, again! Three weeks ago, I was sweating, no, praying, for our S&P/ASX 200 index to beat 5400 and stay above it but this week we smashed through 5500, though we didn’t sustain that unexpected milestone. That said, I thought a testing time had to be on the cards ahead of the key inflation read next week and August, which brings the reporting season.
Helping this positivity has been the post-Brexit expectation of easier central bank policies worldwide, good US economic data, Japan looking poised for more stimulation and China’s latest growth numbers coming in a little better than expected.
On top of that, the US reporting season has started with pretty positive revelations and all this has powered the Dow and S&P 500 to all-time highs. And this march to historic highs continued overnight, just when I have to say I was expecting this optimism to be given a real credibility workout.
Peter Cardillo, chief market economist at First Standard Financial, summed it all up for CNBC. “Earnings are coming in better than people expected but it’s the no-alternative factor that continues to aid equities domestically.”
And this can’t be ruled out when we try to look for reasons to buy stocks – interest rates are so low, so where else do you put your money?
Over the past few weeks, it has been good to see financial stocks gain some love overseas and even here. That’s a nice omen and some of the market rise has been linked to the smarties, who have been shorting banks, being forced to reverse their bets. Love a short squeeze on those suckers!
Despite the 14-point fall for the S&P/ASX 200 on Friday, we were up 69 points (or 1.3%) for the week.
Only the miners had a week to forget, while healthcare spiked 4.4%!
So can this optimism be sustained? This will be the subject for my longer piece on Monday but if next week’s inflation number pumps up the chances of an August rate cut, then this market positivity could have some more legs.
What I liked
- AMP Capital chief economist, Shane Oliver, calculated that of the 115 companies that have reported, 81% beat earnings expectations and 58% outperformed on sales.
- The CBOE Volatility Index (VIX), or fear index, traded near 12.58, which is really low.
- The preliminary reading of manufacturing and services activity showed business activity in the Eurozone fell less than expected in July. Eurozone PMI rose to 52.9 in July, above expectations of 52.5, according to analysts polled by Reuters. Any number over 50 means expansion.
- US manufacturing in July hit the best level since October, on the latest Markit reading. The purchasing manager’s flash index rose from 51.3 to 52.9.
- The leading index in the States rose by 0.3% in June (forecasts +0.2%).
- General Motors posted a record second-quarter profit on Thursday, sending shares up more than 3%. The stock is pacing for its twelfth consecutive positive day for the first time ever. (CNBC)
- The Bank of Japan’s Governor Haruhiko Kuroda told BBC radio that there is no need for “helicopter money” to fight inflation, as the central bank already had mechanisms in place to ease further, if needed.
- The yield on Australian equities, at 4.5%, is one of the reasons the Credit Suisse Investment Committee out of Zurich has moved from neutral to outperform on this asset class. (Love the Swiss!)
- On average, in 2015-16, there were 139,400 people aged 15-19 who were unemployed, down 13,300 (or 8.9% over the year) – the biggest percentage decline in 17 years.
What I didn’t like
- The ANZ/Roy Morgan consumer confidence rating fell for the fourth straight week, down by 0.3% to 114.9 in the week to July 17. However, it’s not all bad, with confidence up 2.8% over the year and above the average of 112.1 since 2014.
- The IMF reduced its 2016 forecast for global economic growth by 0.1 percentage point to 3.1% and cut the 2017 forecast by a similar margin to 3.4%. Happily, this mob’s not a great forecaster.
- The Philadelphia Federal Reserve index fell from +4.7 points to -2.9 points in July (forecast +5.0 points). This is a closely watched reading on economic activity but the monthly numbers can bounce around.
- The services and manufacturing composite index in the UK fell to its weakest level since early 2009, to 47.7 from 52.4 in June, making the Brexit decision look substantially risky. A rate cut and a weaker pound are ahead.
- Some of the softness in the oil price but I’m not too spooked, given the popularity of energy stocks. Gotta hope the market is right on the outlook for energy.
- Trump’s speech at the Republican Convention, which was so craftily crafted to hit just about every touch point that scared, powerless Americans would care about! It was Pauline Hanson on Putin-created steroids!
Stocks of the week
I asked five experts on my TV show (including myself) to give us their three best picks right now and some interesting stocks showed up. You can read all about it here… [1]
(It actually ended up being only 14 because Paul Rickard and I agreed on the same stock!)
Had to share this one…
This is a take on Donald Trump, who worries me (if only for market reasons) and it comes from Sam Stovall of the S&P Global Market Intelligence unit in New York, who I interviewed when I last took my TV show to the Big Apple. He’s a smart guy so I hope he’s right.
“I can’t help but think of how Donald Trump reminds me of a fifth-grader running for president of his class, promising to put Coca-Cola in the water fountains. It may get attention, but it’s never going to materialize.”
Top stocks – how they fared
[table “195” not found /]The week in review
(click the blue text to read more)
- I explained why the low bond rate [2] is (almost) making me a Nervous Nellie.
- Paul Rickard listed five Listed Investment Companies [3] – or LICs – that could reward the patient investor.
- Our Super Stock Selectors [4] liked New Hope, but Primary Health Care was out of favour.
- Charlie Aitken said he’s bullish on a few New Zealand investments [5], which are leveraged to the growth in inbound tourism.
- Tony Featherstone shared five undervalued tech stocks [6].
- Westfield Corporation [7] was this week’s stock pick by Stephen Cleugh of Equity Trustees. Find out why.
- Ramsay Health Care was in the good books [8] this week, while Fortescue was in the not-so-good books. The brokers [9] also liked QBE, but weren’t keen on Ansell or Bluescope.
What moved the market
- Better-than-expected US earnings reports led to record highs on Wall Street.
- The latest RBA minutes helped boost investor sentiment for an August interest rate cut.
- And continued expectations of Euro-area and BoJ stimulus measures added to the optimism.
The week ahead
Australia
- Monday July 25 – State of the States (July)
- Wednesday July 27 – Consumer price index (June quarter)
- Thursday July 28 – Trade price indices (June quarter)
- Friday July 29 – Producer prices index (June quarter)
- Friday July 29 – Private sector credit (June)
Overseas
- Monday July 25 – Dallas Federal Reserve Index (July)
- Tuesday July 26 – US Case-Shiller home prices (May)
- Tuesday July 26 – US Consumer confidence (July)
- Tuesday July 26 – US New home sales (June)
- Wednesday July 27 – US Durable goods orders (June)
- Wednesday July 27 – US Pending home sales (June)
- Wednesday July 27 – US Federal Reserve rate decision
- Friday July 29 – US Economic growth (June quarter)
- Friday July 29 – US Consumer confidence (July)
Calls of the week
- A defiant Ted Cruz is cruzin’ for a bruisin’ after refusing to endorse Donald Trump during his Republican National Convention speech.
- Charlie Aitken says he’s bullish on New Zealand tourism [5] and has put his money where his mouth is with investments in Sky City Casino (SKY), Air New Zealand (AIR) and Tourism Holdings (THL).
- Tony Featherstone tipped five undervalued tech stock opportunities [6], including Link Administration, iSentia, BPS Technology, NextDC and Vista Group.
- And The Court of Arbitration of Sport made the call to uphold a ruling that bans Russian track and field athletes from competing in Rio due to a state-sponsored doping program.
Food for thought
Let blockheads read what blockheads wrote
– Warren Buffett
Last week’s TV roundup
- With stock markets locked in a surprisingly good rally, Charlie Aitken [10] asks the question, is this the end of the US earnings recession?
- To give an expert account on Listed Investment Companies, Paul Rickard joins the show [11].
- Will the Government budge on their super reforms? To discuss [12], Catherine Nance of PwC joins Super TV.
- And Montgomery Investment Management’s Roger Montgomery shares three stocks he likes [13] right now.
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, the biggest mover was Metcash with a 0.91 percentage point increase in the amount of its shares sold short to 13.62%. MYOB Group followed, with its short position increasing from 8.49% to 9.06%.
[14]Source: ASIC
My favourite charts
The Manhattanisation of Australian housing
[15]The chart above shows the quarterly dwelling commencements for houses and units in Australia. In the first three months of 2016, apartment building took the lead with around 29, 986 apartments commenced, compared to 25,122 houses. Are we in a high-rise construction boom?
Clothing spending rise the strongest in 4 ½ years!
[16]The CBA Business Sales Indicator shows how clothing stores spending picked up by 1.3% in trend terms in May and 1.2% in June. That’s the best back to back growth in 4 and a half years.
Top 5 most clicked on stories
- Paul Rickard: 5 bargain listed investment companies [3]
- Peter Switzer: If stocks are doing so well, why am I worried? [2]
- Tony Featherstone: Five undervalued tech stocks [6]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [8]
- Charlie Aitken: Bullish on New Zealand tourism [5]
Recent Switzer Super Reports
Thursday 21 July: Across the Tasman [17]
Monday 18 July: Bond Market [18]
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.