[table “113” not found /]
Are you fed up with the Fed and this infernal first interest rate rise since 2006? Don’t worry if you are, you’d be in a market majority. Right now, the overall betting is that the US central bank will stay on hold, however, economists seem more expectant that a rise is coming next week.
If you’re not tired of this big wait, you should be and it worries me that another delay could ruin my nice little scenario for the stock market.
Using a combination of history, statistics, market movements and post-correction share prices compared to valuations, I think a rate rise in the US next week will create the right conditions for a positive finish for stocks in 2015.
History says a Santa Claus rally on Wall Street happens very regularly and our market actually responds with more Christmas cheer than the Yanks.
In addition, stats show that the year before a US election year is a good one for stocks, so the US market could be poised for a bounce back and, in fact, November and December are historically good for stocks.
And we all know, we have a high correlation with playing ‘follow the leader’ with Wall Street and given the US economy is showing really positive signs and our economy is getting better without improving quickly enough to push our stock prices up, then a rate rise next week should have all the right timing.
If we see a rise next week, the market will sell off but then there’ll be a “thank God it’s happened” rally after the Fed statement is consumed by market influentials, who then will restart share buying (this is my best guess).
On the other hand, a delay until possibly December means the Santa Claus rally would meet the more likely market sell off that a rate rise is likely to create, so that’s why I hope the Fed acts on Thursday.
I don’t want a post-Fed rate rise to create a predictable market madness and mayhem that could ruin our great stock months of December and January.
Not surprisingly, Wall Street was in a pre-Fed anxiety mood but I liked the fact that buyers were still outnumbering sellers with markets up, despite a negative lead from Europe, which was also in Fed-wait mode, and an early slide on US stock markets.
Not helping a Fed move next week was consumer sentiment that dipped this week in the US. Meanwhile, the talk of another plunge in the oil price is never good for Wall Street and this could worry the Fed too. However, surprisingly, the pluses from a lower oil price might be good for US consumers. That said, to date, a lot of those suckers have been saving gasoline price cuts because they think they won’t last! Logical, rational Americans – who would have thought?
On the other hand, large, market index-driving companies’ profits do well with higher oil prices, so the oil price story plus consumer sentiment plus persistent low inflation plus the recent market correction could delay the Fed’s first move towards normalcy.
At home, it has been a bad week for stocks, right? Wrong. It has been an annoying week but we actually finished up 0.6% on the ASX 200 index.
I think economic data will steadily improve and provided the Fed manages market anxiety effectively, then by October (or a little later), we should be off to the races in November, which is exactly what we do on the first Tuesday of that month.
What I liked
- This from AMP’s Shane Oliver: “However, beyond the uncertain near term environment, I expect to see the usual seasonal strength into year-end helped along by much improved valuations, increasing confidence that China has got its growth under control and investors getting more comfortable that the Fed is not going to do anything to upset US/global economic growth.”
- Eurozone June quarter GDP growth was revised up to 0.4% quarter on quarter from 0.3%.
- Unemployment here falling from 6.3% to 6.2% in August but, better still, 235,000 jobs have been created over 12 months.
- NAB’s business conditions reading went from 6 to 10.7 – a big rise that says business is feeling much better about business conditions now. Better still, NSW went from 9 to a huge 22. This is great news for the biggest state economy in Australia where unemployment there is 6% and going down.
- ANZ job ads were up 1% in August and are now 8.7% higher, while in trend terms, they’re up 21 months in a row.
- The US Budget Deficit is down 18% since August 2014 showing how economic growth not only creates jobs it also reduces government deficits. (Knucklehead debt worriers please note!)
- The SMH’s Jessica Irvine actually writing a story headlined as “10 Reasons to feel positive about the Australian economy”. Way to go Jess – you’re coming on my TV show!
- Blackmores up 11.3% for the week to, wait for it, $123! The CEO Christine Holgate has been a regular on my TV show and we have talked it up in this Report but this share price surge has surprised everyone.
- A number of smart fund managers are buying BHP every time it goes under $24 but they are value buyers, who are prepared to be rewarded over time (not tomorrow).
What I didn’t like
- The Westpac consumer confidence reading and the NAB business confidence number both fell but it followed a shocker month for stocks and China, which created very negative headlines, so a confidence fall was logical.
- Goldman Sachs’ prediction that the oil price could go to $US20 a barrel, which got the headlines but it wasn’t the company’s base case!
- Goldman telling us that a recession here is a one in three chance! Maybe this should be in my “What I liked” section, as it actually is saying there’s big chance of no recession.
- The Citi forecast from US-based economist Willem Buiter, who said China could drag the world economy into recession. This wasn’t his base case but journalists reported it like it was his call. It wasn’t. In fact, he said it was more like 50:50! That’s like saying it might rain but then again, it might not. (I think I can see why Beijing recently arrested finance journalists! A Chinese jail might be too good for a lot of them!)
- US consumer sentiment at 85.7 for September was less than the expected 91.2 and the worst result since September 2014.
The biggest like for the week
It had to be interviewing Richard Branson [1] with his worldwide Group CEO – Josh Bayliss, who’s an impressive young Kiwi. I really wish there was a stock listed that’s simply called Branson.
Apart from his impressive business-building record, his positivity is infectious and he made me think of my favourite Muhammad Ali quote that says: “It’s the repetition of affirmations that leads to belief. And once that belief becomes a deep conviction, things begin to happen.”
And don’t forget my affirmation either: “We’re in a buying opportunity zone!”
Sure, the Fed could send stocks down further but this would create an even better buying opportunity.
And remember what Sir Richard once advised: “Business opportunities are like buses, there’s always another one coming.”
I never get fed up with people who say and think things like that! (You can watch the Branson interview at http://www.switzer.com.au/video/richard-branson/ [1] if you missed it this week).
Top stocks – how they fared
[table “112” not found /]The week in review
(click the blue text to read more)
- I explained why I’m not worried about this market sell off and gave you my strongest reasons as to why we’re looking at a buying opportunity [2].
- Paul Rickard gave an update [3] on how the Switzer Super Report model portfolio’s fared through August. While the market was a sea of red last month, the portfolios are in the black for the year to date.
- James Dunn said Rio Tinto, BHP Billiton, ANZ, National Australia Bank and Lend Lease are five battered blue chips [4] worth considering.
- Tony Featherstone gave you two strategies – and five companies – to win in the retail sector [5] – companies exposed to domestic housing, and those growing strongly overseas.
- This week the brokers upgraded Ansell, Crown and Freedom Foods Group [6]. In our second broker report [7], ASX and Westpac were among the upgrades.
- Penny Pryor said companies that surprised on the upside during reporting season weathered August well and the dividend play is not dead yet [8].
- And Paul Rickard reminded us of the strict rules under which SMSFs can borrow and lend money [9].
What moved the market
- Uncertainty around the Federal Reserve’s rate decision next week.
- Apple shares gave a boost to Wall Street following the company’s unveiling of upgrades to its smartphone, tablet and TV products.
- China’s $US11 billion railway project.
- Australia’s jobless rate, which eased to 6.2% in August from 6.3% in July.
The week ahead
Australia
- Monday September 14 – Credit and debit card lending (July)
- Tuesday September 15 – Weekly consumer sentiment
- Tuesday September 15 – Minutes of Reserve Bank Board meeting
- Tuesday September 15 – New vehicle sales (Aug)
- Wednesday September 16 – Speech by RBA official
- Thursday September 17 – Detailed employment data (August)
- Thursday September 17 – Reserve Bank Bulletin
- Friday September 18 – Testimony by RBA Governor
Overseas
- Sunday September 13 – China monthly data (August)
- Tuesday September 15 – US Retail sales (August)
- Tuesday September 15 – US Industrial production (August)
- Wednesday September 16 – US Consumer prices (August)
- Wednesday September 16 – US Federal Reserve meeting
- Thursday September 17 – US Housing starts (August)
- Friday September 18 – US Leading index (August)
Calls of the week
(click the blue text to read more)
- The Federal Government announced that it would take an extra 12,000 refugees displaced by the conflict in Syria and Iraq.
- Charlie Aitken [10] expects the cash rate to have a “1” handle in front of it by the end of the year and forecasts an A$/US$ in the mid to low 60’s. He also thinks resources and banks are two major sectors in Australian equities that have bottomed and says buy baby buy at these levels!
- San Francisco 49ers coach Jim Tomsula picked former Australian NRL player Jarryd Hayne for the team, making him the first Aussie to make the switch to the American code. Small cap funds manager David Paradice has also backed the Hayne Plane after sealing an early sponsorship deal with the budding NFL star.
- Paul Rickard made the call that there’s a cooling – but not a crash – happening in the Australian property market. Read his analysis here [11].
Food for thought
You don’t learn to walk by following rules. You learn by doing, and by falling over.
– Sir Richard Branson, Virgin Group founder.
Last week’s TV roundup
- Is SSR expert Paul Rickard optimistic about what shares can do before Christmas time? Find out here [12].
- George Boubouras of Contango Asset Management explains whether we’re in a buying opportunity and where to find value [13].
- Virgin Group founder and inspiring entrepreneur Sir Richard Branson, along with Virgin Group head Josh Bayliss, discuss some new launches [14] for the company.
- Rudi Filapek-Vandyck of FN Arena tells us about some small cap stocks with great potential [15].
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 1.04 percentage point increase in the proportion of its shares sold short to 21.86%. Monadelphous Group was another big mover, with a 1.01 percentage point increase to 15.68%.
[16]Source: ASIC
My favourite charts
It’s business time
[17]Here’s your good news story for the week – the NAB business conditions index spiked 6 points to a 10-month high of 10.7. This means the health of corporate Australia is getting better and better.
Good job bob
[18]17,400 new jobs were added in August (10,000 were expected) after rising 39,000 in July. The chart above shows a total of 235,000 jobs added over the past year – the strongest growth in over four years, according to CommSec chief economist, Craig James.
Top 5 most clicked on stories
- James Dunn: 5 battered blue chips [19]
- Charlie Aitken: Big buying opportunities in resources and banks [20]
- Peter Switzer: Why I’m not worried about this sell off [2]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [21]
- Paul Rickard: Portfolios track market lower in August but still beat index [22]
Recent Switzer Super Reports
- Thursday 10 September, 2015: Dippy daze [23]
- Monday 7 September, 2015: Sage advice [24]
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.