Switzer on Saturday

Aussie stocks up, despite US Disneyland politicians!

Founder and Publisher of the Switzer Report
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Ahead of the close on Wall Street, negativity was beating positivity, with the failure to reach an agreement on a stimulus package, on top of rising infections leading to shutdowns and other business restrictions. The latest news from New York is that Governor Cuomo has banned indoor dining as of Monday!

And the situation has become so laughably crazy that two Republican senators have proposed a bill to ban government shutdowns, which actually could create a government shutdown! Yep, trying to get their bill passed ahead of the stimulus bill might create a delay that pushes the debate beyond the deadline, where a lack of funds from Congress will mean public servants will be sent home. Only in a America. “The inability for Washington to enact more fiscal aid is a complete failure. We know where the differences lie,” wrote Gregory Faranello, head of U.S. rates trading at AmeriVet Securities. “Right now this is about cashflow and saving businesses and helping keep individuals afloat while we rollout the vaccine.” (CNBC)

As I was writing this morning, Congress passed a one-week government-wide funding bill to avert a shutdown and give extra time for a COVID-19 relief bill or stimulus talks. And the Dow, helped by a 15% surge in Disney after a good report, went into positive territory. Only in America does the stock market get rescued by Disneyland!

If you want to see more craziness, this delayed stimulus bill, meant to rescue unemployed Americans who are needed to keep the economy recovering ahead of the all-important holiday shopping period, will lead to a spike in the jobless rate.

The key date is December 18. If there’s no result then, Wall Street could put a bomb under these deadbeat senators and sell off. Of course, the flipside is a bill gets passed and then stokes the fire for a Santa Claus rally that historically happens in the last seven days of the year and rolls into the two opening days of the next year.

I can see a passing of the stimulus bill on top of the dispensing of a vaccine, which the FDA decides on over the next two days as a potent driver of market buying. However, if the opposite happens, a sell off will proceed and I’d be telling you that a buying opportunity will emerge, which will make you money when the Yanks decide to let good sense prevail on stimulus and the vaccine.

Not helping is continued failure to reach a Brexit trade deal, with the UK’s Boris Johnson saying no deal is a “strong possibility”. The Eurozone as well as UK stock markets didn’t like what they heard.

The deadline is the end of the month and talks to extend this hard date failed this week.

To the local story, and the S&P/ASX 200 lost 0.6% (or 40 points) on Friday but sneaked up 0.1% for the week. But the following chart shows enthusiasm is waning as profit-taking happens. And wouldn’t it, after November’s 10% gain? This chart suggests next week could be tricky for market optimists.

S&P/ASX 200 Past 5 days

Like Wall Street, the stock market is in a ‘to and fro’ phase for slightly different reasons, with the market now chasing reopening trade stocks. But after they’re bid too high, profit is taken and stay-at-home stocks that are good long-term holds attract buyers. Also the Wall Street effect, while less impactful, still exerts sector pressure. That is, if energy sells off because of infection and stimulus issues delaying the reopening of the US, then we feel the effects, despite the fact our economy is reopening brilliantly.

Temple & Webster (TPW)

Here’s a case in point: Temple & Webster was up 1.5% on Friday, after being out of favour since the reopening trade outweighed the stay-at-home trade.

The good news was the iron ore price above $US150 a tonne, thanks to China demand — they aren’t all bad for us!

Fortescue was up 11.4% for the week to $22.95, while BHP finished the week at $42.82, up 17% for the month!

Bloomberg shows us the winners and losers for the week.

As you can see, Webjet has lost 8.73% this week but is up a whopping 98% since August 3. Did I say that there has to be a bit of profit-taking on the go?

And if you want to know why Afterpay’s share price keeps defying gravity, then look at this from the AFR’s Sarah Turner: “Afterpay climbed 6.9 per cent to $101.01 after inking new partnership deals with a range of Canadian retailers. The buy now pay later provider has partnered with SHEIN, Rains, Triarchy and Clarins.” These guys never stop trying to grow their business.

Meanwhile Zip lost 6.1% for the week but put on 1.94% on Friday. And Appen gave up 14.5% after it downgraded its 2020 earnings, blaming the company’s biggest market (California), where new lockdown measures have hurt the business of its largest customers. Smells like a buying opportunity for the patient investor, but waiting for a spell could be wise.

I’ll get my experts onto Appen on Monday night’s Switzer TV Investing show.

What I liked

  • NAB’s business confidence index hit a 31-month high.
  • NAB’s Business conditions index hit a 20-month high.
  • Westpac’s consumer confidence hit a 12-month high.
  • Retail is up 7.1% this year.
  • The value of new loan commitments for housing rose by 0.7% in October to record highs. Loans are up over 34% in five months.
  • The value of Aussie homes hit record highs.
  • House prices are up 4.5% for the year, despite a recession.
  • Job ads, as measured by ANZ, rose 13.9% in November.
  • The AiGroup Performance of Services index rose by 1.5 points to a 12-month high of 52.9 in November. Any reading above 50 indicates an expansion in activity.
  • According to the Commonwealth Bank (CBA), card spending in the fortnight to December 4 lifted by 13% on a year ago. Spending on services rose 4% from a year ago. And the annual growth rate of goods spending climbed 21%.
  • The European Central Bank increased the overall size of its Pandemic Emergency Purchase Programme by 500 billion euros, in line with market expectations, and also extended the scheme by nine months to March 2022.

What I didn’t like

  • Consumer prices in China fell 0.6% in November to be 0.5% down on the year – the first fall in prices in 11 years. Producer prices fell 1.5% in the year to November.
  • The NFIB small business optimism index in the US eased from 104 to 101.4 in November (survey: 102.5).
  • A total of 853,000 laid-off workers filed for jobless compensation last week, up 137,000 from the revised figure of the week before. It was the first time since mid-October that the weekly figure had topped 800,000, after hovering in the 700,000-plus range for seven consecutive weeks.
  • The ECB forecast a slower rebound in growth in 2021 of 3.9%.

Could a dislike help create a like?

This huge 853,000 spike in jobless claims could be the reality check that gets these US senators to pass this infernal stimulus bill. While the jump in claims for unemployment benefits is negative for the economy, the hope is that it will accelerate progress towards getting a fiscal stimulus package ASAP.

The week in review:

Our videos of the week:

Top Stocks – how they fared:

The Week Ahead:

Australia
Monday December 14 – Mid-Year Economic & Fiscal Outlook (MYEFO)
Monday December 14 – Overseas arrivals & departures (October)
Tuesday December 15 – Speech by Reserve Bank official
Tuesday December 15 – Reserve Bank Board meeting minutes
Tuesday December 15 – Weekly payroll jobs & wages (November 28)
Wednesday December 16 – Markit purchasing manager index (December)
Thursday December 17 – Labour force (November)
Thursday December 17 – Population growth (June quarter)
Thursday December 17 – Finance & wealth (September quarter)

Overseas
Tuesday December 15 – China retail/production/investment (November)
Tuesday December 15 – US Industrial production (November)
December 15-16 – US Federal Reserve interest rate decision
Wednesday December 16 – US Retail sales (November)
Wednesday December 16 – ‘Flash’ Markit purchasing manager indexes
Wednesday December 16 – US NAHB housing market index (December)
Thursday December 17 – US Housing starts & building permits (Nov.)

Food for thought:

“The most contrarian thing of all is not to oppose the crowd but to think for yourself.” – Peter Thiel

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:

The following chart from Datamentary depicts the largest stock markets in the world by market capitalisation, with the ASX (shown in dark blue) coming in 11th place:

Top 5 most clicked:

Recent Switzer Reports:

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