Big bank haters have had a disappointing week, with our big banks helping the S&P/ASX 200 to a nine-month high. And in case you don’t count these kinds of things like I do, this is the seventh ‘up’ week in a row!
But wait, there’s more for bullish types.
We finished above the psychologically important 5400 level on Friday. The 18-point gain took the index to 5406 and it was August last year (and pre-Glencore’s dramas) when we were last around these levels.
I know I’m laying this on thick but this has been a great buy-the-dip episode, as we were at 4707 in early February. That was the best advice I could give to you and it’s nice that it’s working out. That’s a 14.8% gain but don’t worry, I won’t annualize that return (but if I did, it would be heaps).
Look, I know there’s a lot wrong with our banks in certain divisions but they’re still a pretty good investment commodity. Even the debt ratings agency, Fitch, underlined this yesterday. I know the media tried to emphasize the worst aspects of this Report into our banks but I simply looked for hints that they were looking to downgrade the banks.
Hats off to the AFR, which came out with a headline ‘Dividendosaurus’ banks on the nose but Fitch says don’t panic, which is a pretty good effort for Fairfax. I might joke around with eco-market stuff but I love serious, objective analysis.
Sure, there are challenges for our banks. And one is the fact that everyone is long them, which makes it a crowded trade but this was the important line in the AFR’s report: “But the banks are not about to implode either, although fintech may change that scenario in years to come.”
And I liked this objectivity too: “The ratings agency also warns that pockets of Australia’s property market face potential oversupply of new residential housing. This could hurt housing prices in those areas. But it doesn’t sound too worried about how this will impact the majors either, noting their tightened lending criteria.”
All the other risks underlined, embellished and made scary (as only journalists looking for recognition can do) were all ‘known knowns’ (as former US Secretary of Defence, Donald Rumsfeld might put it).
(On Monday, I’ll put banks under a more intense microscope.)
Back to the great week that was and we were up 55 points. Undoubtedly, oil continues to pump this rally. So when we drive past our local service station and see the petrol price rise, it now seems to be a plus for our stock market, for two reasons.
First, it says that the oil price spike effect on stocks is still on. Second, our dollar must be sliding because these are the two reasons why we’re paying more at the bowser. (There’s a third reason – oil companies gouging but that’s a fact of life we ignore.)
This dollar down story continues overnight, with the Oz at 71.89 US cents. This partly explains why the likes of CSL and Macquarie have had great weeks at the office this week. The Big Mac was 5.4% higher and my colleague Paul Rickard reckons he was onto this early and tipped it so. And he did but I’ve always been a millionaires’ factory believer, as regular readers might’ve observed. And it goes double as the dollar dives and the US economy perks up, as they make a lot of money out of the Yanks nowadays.
On the subject of banks – let’s go to the world’s best-known banker, Janet Yellen. Yellen was on slip-of-the-tongue watch overnight with a speech she made at Harvard. Her best comment was that “the Fed is doing everything to avoid another crisis.”
Interestingly, she said a rate rise “in the next few months” would probably be appropriate. Of course, she said a lot and clearly observed that the US economy is improving and it all adds to the key reason why stock markets aren’t giving into gravity right now. Despite Brexit fears, Trump troubles and all the other crazy curve balls out there, the US economy is looking better and more capable of copping another interest rate rise.
If the US can creep closer to a normal economy, as the world’s biggest economy, then the global economy could be a step or two closer to a pre-GFC normalcy. Better signs out of Japan, Europe and China, compared to what was predicted by markets in January-February, underpin why stocks are sneaking higher.
By the way, both of my charts guys, Lance Lai and Gary Stone, predicted as much maintaining their damn good call rate.
What I liked
- This CommSec headline: “Biggest lift in investment plans in almost a decade!”
- The second estimate of investment in 2016/17 is $89.2 billion, up 6.3% on the first estimate and the second best lift for an equivalent period in eight years.
- Residential construction work lifted by 1.5% to record highs.
- The ANZ/Roy Morgan consumer confidence rating rose by 0.5% to 115.7 in the week to May 22. Despite being in an election period, confidence has been rising – up 3.6% in the past four weeks, so maybe we’re ignoring the campaign!
- Wall Street was positive again overnight, with the S&P 500 having the best week in three months.
- US new home sales soared by 16.6% in April to an 8-year high of a 619,000 annual rate (forecast: 523,000).
- The US Markit “flash” manufacturing reading for May eased from 50.8 to 50.5 but it’s still an expansion number.
- US consumer sentiment in May came in at 94.7, versus 89 in April.
- The VIX or fear index for US stocks fell to around 13.3 on Friday, which is a nice, low reading.
- Chinese industrial profits rose 4.2% in April, compared to a year earlier. While the number was down on the 11.1% in March, the overall trend on a quarterly basis is positive.
What I didn’t like
- This Reuters headline: “Oil slips for 2nd day as $50 level sparks new output fear.”
- New business spending on buildings and equipment fell by 5.2% in the March quarter, after an upwardly-revised 1.8% lift in the December quarter. However, this is the past.
- Construction work done in the March quarter fell by 2.6%, driven by a 4.2% slump in engineering work and a 5.5% slide in commercial building.
Away from markets and the economy, I did like seeing Mathias Cormann say something nice about Bill Shorten, even if he mistook Bill for Malcolm! I thought he was turning into a political ‘girly man’ before our eyes!
And the Johnny Depp versus Barnaby Joyce mind game battle was a cracker. If you missed it, it’s in our Call of the Week below. Barnaby is priceless and should be listed. Ticker code? MAD.
Top stocks – how they fared
[table “179” not found /]The week in review
(click the blue text to read more)
- This week [1], I explored whether or not we’ll see another rally in 2016!
- My colleague Paul Rickard gave you a run down on Westpac’s new hybrid [2] – Capital Notes 4.
- James Dunn explained how utilities companies are becoming more attractive in a low interest rate world and named five to consider [3].
- The brokers [4] upgraded Metcash and Mirvac Group and downgraded James Hardie Industries. In our second broker report [5], CYBG and Lifehealthcare Group were in the good books.
- Our Super Stock Selectors [6] liked NAB and Carsales.com but Woolworths was out of favour.
- Charlie Aitken discussed the investment strategies [7] he’ll be using if increased volatility creeps around the corner.
- Tony Featherstone explored some offshore alternatives [8] to Australian stocks that now look fully valued.
- Gary Stone explained how the “sell in May and go away” narrative didn’t really take hold this year with his technical chart [9] of the ASX200.
- Our Professional’s Pick [10] by Sean Fenton was Sirtex Medical for its strong expected earnings.
What moved the market
- A stronger oil price supported mining and energy stocks.
- Investors got comfortable with a potential US rate rise by Fed boss Janet Yellen.
- Firming bank stocks also helped investor sentiment on the local front.
- And Wesfarmers was hit after CEO Richard Goyder announced around $2billion in write-downs and restructuring costs mainly related to its Target business.
The week ahead
Australia
- Monday May 30 – Business indicators (March quarter)
- Tuesday May 31 – Private sector credit (March)
- Tuesday May 31 – Balance of payments (March quarter)
- Tuesday May 31 – Government finance (March quarter)
- Tuesday May 31 – Building approvals (April)
- Wednesday June 1 – Economic growth (March quarter)
- Wednesday June 1 – CoreLogic RP Data home prices
- Thursday June 2 – Retail trade (April)
- Thursday June 2 – International trade (April)
- Friday June 3 – Tourist arrivals (April)
Overseas
- Tuesday May 31 – US Personal income (April)
- Tuesday May 31 – US Case Shiller home prices (March)
- Tuesday May 31 – US FHFA House price index
- Wednesday June 1 – US ADP employment (May)
- Wednesday June 1 – China manufacturing (May)
- Wednesday June 1 – US ISM manufacturing (May)
- Wednesday June 1 – US Beige Book
- Friday June 3 – US ISM services (May)
- Friday June 3 – US Non-farm payrolls (May)
Calls of the week
- Charlie Aitken has made the call [7] to keep some powder dry for when volatility increases over the next few months, the RBA cuts rates again, and dividend paying stocks become more attractive sources of income in this low-income world.
- Johnny Depp made the call to make it personal with agriculture minister, Barnaby Joyce, saying that he looked inbred with a tomato in what is the ongoing saga with his smuggled pooches, Pistol and Boo! Joyce responded, “I’m inside his head, I’m pulling little strings and pulling little levers. Long after I’ve forgotten about Mr Depp, he’s remembering me. I’m turning into his Hannibal Lecter.”
- Manchester United made the call to sack Manager Louis van Gaal after winning the FA Cup, and give one of football’s toughest gigs to Jose Mourinho.
Food for thought
If you do what you’ve always done, you’ll get what you’ve always gotten.
Anthony Robbins, US motivational speaker
Last week’s TV roundup
- Christopher Joye recently said house prices are going nuts and the RBA has lost the plot. For his views on property and more, he joins Super TV [11].
- How are ETFs performing and what are the ones worth considering for your portfolio? To discuss [12], head of iShares Australia Jon Howie joins the show.
- On Super TV [13], Paul Rickard recaps the Government’s proposed super changes and what they mean for you.
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 one of the biggest movers was MMA Offshore with its short position increasing by 2.21 percentage points to 8.19%. Metcash went the other way, with its short position reducing by 1.42 percentage points to 15.36%.
[14]Source: ASIC
My favourite charts
The power of mid cap stocks
[15]Who said bigger was better? The middle of the pack is where it’s at with the Mid-Cap 50 index (that’s companies ranked 51-100 in terms of share market capitalisation) performing strongly, hitting an 8-year high of 5,523 this week.
Hold and stay in May?
[16]Our technical expert Gary Stone shows how May 2016 bucked the ‘Sell in May and go away’ trend, with the ASX 200 showing signs of strength during the month of May and breaking out of a key resistance zone. Can we move higher from here?
Top 5 most clicked on stories
- Paul Rickard: Westpac’s new hybrid will be keenly sought! [2]
- Charlie Aitken: Pick your dividend targets for the pullback [7]
- Peter Switzer: How believable is another good market rally this year? [1]
- Tony Featherstone: The Big Five – Australia’s utilities companies [3]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [4]
Recent Switzer Super Reports
- Thursday, 27 May, 2016: May moves on [17]
- Monday, 23 May, 2016: Rally reality [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.