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Paul Keating once warned “never get between a Premier and a bucket of money” and we saw why when the SA Government decided on its own bank levy. It led to a new bout of bank selling and didn’t give the S&P/ASX 200 index a ghost of a hope of finishing in the black after the 1.6% loss on Wednesday.
The index was down only 1% for the week at 5715.9 and given we have oil and iron ore prices sliding and banks under pressure, the loss for the index underlines my central investing premise at the moment that the goods still outweigh the bads for big stock market influencers.
That said, whether we break the 6000 level on the Index this year will all rest on what Donald Trump can do with his tax plan in the Congress. I said this week in Switzer Daily that investors aren’t sure what’s going on but they’re still leaning to the positive. And for those optimists out there, the US Secretary Steve Mnuchin gave us the headline for the week when he stuck his neck out to suggest the tax plan has a good chance of getting up this year!
This guy really is the second most important guy behind Donald and doesn’t come from the ‘slam bam thank you mam’ team that Donald has been brought up with, so Steve’s word has to be respected, until he shows us that he’s not a Trumpster kind of guy. The President needs a respected numbers man or his credibility will be damaged even more than it is with his unhelpful tweeting.
Right now, Wall Street has been doing its best to fight gravity, despite four days of losses for energy prices. And we all recall what happened to the S&P 500 when oil prices slumped over 2014 and 2015. US stocks were not in record territory and moved sideways for much of the period.
We are at more elevated levels but the Yanks commitment to stocks has to be appreciated and the combination of good US company earnings plus good-to-OK economic data plus the hope that Trump will come through is underpinning this market optimism. However, we’re still in a precarious predicament and my life of investing has never rested on someone like the current US President.
I guess it’s just a new take on that old “climbing a wall of worry!”
Also underlining how confusing stocks are, on June 20 Michael Ashbaugh from Market Watch said: “Technically speaking, two of the big three U.S. benchmarks have extended the persistent 2017 bull trend,” and it led a story headlined as “Charting the latest S&P 500 breakout amid bullish sector rotation!”
Meanwhile, Citi research in the US found: “The intra-stock correlation between the 50 largest S&P 500 components by market capitalization – including high-flying technology stocks like Apple and Amazon – has dropped to the mid-teens, suggesting there’s “the potential for a coming dip in share prices,”” Tobias Levkovich, US chief equity strategist at Citi, said in a note on Thursday. (CNBC)
All this tells me we’re in a genuine “cross your fingers” situation but as I said earlier, the inclination to sell off is not strong and long may it stay that way. And it makes sense that I say: “Go Donald, Steve and the House Speaker and main man, Paul Ryan.”
These guys can have a big impact on our portfolios this year.
On Wall Street overnight, the S&P 500 sneaked up nearly 4 points following oil having a better day after four lousy ones this week.
This from Marc Chaikin, the CEO of Chaikin Analytics, sums it all up: “It’s pretty tough to knock this market down. There has been some very healthy rotation within the sectors in between earnings seasons.”
Rotation does not happen when investors are heading for the exits.
What I liked
- This from AMP’s Shane Oliver: “Global shares mostly rose over the last week, despite falls in energy shares, as economic data was good.”
- Eurozone consumer confidence rose to its highest in 16 months and French business confidence rose to a six year high.
- This anecdotal take on the Italian economy: the trucks on the autostradas drove me mad for the past three weeks but it screams that the Italian economy is on the comeback trail!
- This chart showing interest rates are falling for non-investor home buyers, which might help consumer confidence, eventually!
- The leading index in the US rose 0.3% as expected in May.
- The Kansas City manufacturing index rose from minus 1 to +23 in June, with the composite index up from +8 to +11.
- The New York Federal Reserve President William Dudley flagged higher interest rates in a speech saying that inflation was likely to rise in line with wages in response to a tight job market. Dudley said it was “so far, so good” with the Fed’s tightening cycle.
- Employment rose by 133,500 in the three months to May in Oz, after a gain of 42,300 in the previous three months. It was the biggest quarterly gain in jobs for over two years!
- The weekly ANZ/Roy Morgan consumer confidence rating eased from an 8-week high of 112.9 to 112.4 in the week to June 18 but it’s still high.
- Sales rose strongly across the economy in May, according to the Commonwealth Bank Business Sales Indicator (BSI). In trend terms, the BSI lifted by 0.8% in May, with sharp upward revisions to the pace of growth in March and April.
- The Bureau of Statistics (ABS) reported that new vehicle sales rose by 2.9% in May – the fifth rise in six months. Annual sales of both sports utility vehicles (SUVs) and “other vehicles”, like utes, are at record highs.
What I didn’t like
- This persistent Amazon anxiety, though it’s creating a buying opportunity. (Fund manager Eley Griffiths thinks a company like Noni B looks like good value with all this silly Amazon stuff.)
- At the end of March, there were 39,800 more homes than at the end of December. But the number of NSW homes rose by just 7,600 – the smallest quarterly gain in three years.
- The current oil picture. Here we are relying on OPEC, non-OPEC producers and Donald Trump!
- The madness in SA with its bank levy!
- The Chicago Federal Reserve President Charles Evans said he was concerned about the ongoing softness of inflation, saying that it made him feel “a little bit nervous” and adding that the central bank may wait until later this year before lifting rates again.
Arrivederci Italia
By this time next week I will be in Oz and while I did miss two ripper State of Origin games and the comeback of the Swans into the top eight, the positive economic signs for Europe and Italy are like wins for a footie fanatic, who nowadays is more a stocks fanatic.
Let’s hope the US Congress, unlike the SA Government, understands the pivotal role government decisions play for economic and market confidence.
Top stocks – how they fared
The week in review:
- This week, I discussed whether the more complicated ETFs are risky [1]. The key word is “complicated”.
- Tony Featherstone [2] revealed four companies across the investment spectrum to put on the buy list.
- Paul Rickard outlined 7 actions to take [3] before next Friday – the end of the financial year!
- Speaking of the EOFY, the clock is ticking on changes to super with the $1.6 million transfer balance cap and CGT relief rules [4] set to start on July 1. Mark Ellem discussed what you need to do before then.
- Vince Pezzullo from Perpetual said he sees value in Europe’s dominant exchange operator, Deutsche Boerse [5].
- The brokers upgraded Galaxy Resources, while Mirvac and Steadfast [6] were in the not-so-good books.
- In our second broker report, AGL and Southern Cross Media were upgraded, while Fortescue Metals [7] received a downgrade.
- Roger Montgomery [8] said there are precious few assets trading at good value – so which industries are being disrupted, or are at cyclical turning points?
- This week, our Super Stock Selectors [9] liked a global investment management company and an Australia-based industrial minerals and tech company.
- We answered reader queries about superannuation, Santos and why the Switzer Dividend Growth Fund [10] has a core holding in BHP.
What moved the market?
- Lower oil prices weighed on energy producers. Libya and Nigeria – both exempt from the production agreement between OPEC and major non-OPEC producers – have increased production.
- Amazon fears continued to spook the retailers after the company revealed plans to buy bricks and mortar retailer Whole Foods in the US, and the roll out of its “Prime Wardrobe” initiative – a ‘try before you buy’ fashion service.
- Some bargain hunting in the banking, energy and materials sectors helped the local market recover some of its losses.
- And Domino’s got burned after a Citi slapped it with a sell rating.
Calls of the week
- Global ratings agency Moody’s downgraded the credit rating of 12 Aussie banks (including the Big Four) by one notch, from Aa2 to Aa3. But David Bassanese reckons this isn’t cause for shock and alarm. Find out why [11].
- My mate Paul Rickard called the NSW Budget “B-grade”. Click here [12] to find out why he believes it will go down as a missed opportunity.
- Tony Featherstone [2] revealed four stocks for the new financial year! Don’t miss it.
- Qatar airways was crowned ‘world’s best airline’ in the SKYTRAX2017 World Airline awards. It’s the fourth time the airline has claimed the top spot in the annual passenger survey.
- The ACCC’s concerns about Tabcorp’s $11bn merger with Tatts Group were rejected by the Australian Competition Tribunal (ACT). The ACT gave the deal the green light with one condition – Tabcorp must divest its Odyssey Gaming Services Business.
The week ahead
Australia
- Tuesday June 27 – Census 2016 data
- Tuesday June 27 – Demographic statistics (Dec quarter)
- Thursday June 29 – Finance & wealth (March quarter)
- Thursday June 29 – Job vacancies (May)
- Thursday June 29 – New home sales (April)
- Friday June 30 – Private sector credit (May)
Overseas
- Monday June 26 – US Durable goods (May)
- Tuesday June 27 – US Case Shiller home prices (April)
- Tuesday June 27 – US Consumer confidence (June)
- Wednesday June 28 – US Pending home sales (May)
- Thursday June 29 – US Economic growth (March quarter)
- Friday June 30 – US Personal income (May)
- Friday June 30 – China purchasing manager indexes
Food for thought
- “It’s the repetition of affirmations that leads to belief. And once that belief becomes a deep conviction, things begin to happen.” – Muhammad Ali
Last week’s TV roundup
- David Bassanese [13] joins Super TV to share his views on the market, the banks, the economy and much more.
- Can the US share market go higher, and if so, where is the rally likely to top out? For a technical assessment on global markets – and our banks and retailers – Gary Stone [14] of Share Wealth Systems joins Super TV.
- Is there value in the market right now? Are Amazon fears overdone? To discuss these issues and more, Simon Bond [15] from Morgans joins the show.
- There are big super changes around the corner. Graeme Colley [16] from Super Concepts discusses the $1.6 million transfer balance cap, obtaining capital gains tax relief and what actions trustees and members need to take by June 30.
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.
This week one of the biggest movers was Select Harvests, with its short position increasing by 1.08 percentage points to 10.36%. Vocus Group went the other way, with its short position decreasing from 11.72% to 8.64%.
Source: ASIC
Chart of the week
Healthy gains
Source: CommSec
Employment rose by 133,500 in the three months to May but it was the Healthcare and Social Assistance sector that did most of the heavy lifting. As you can see in the chart above, employment rose 47,000 in this sector to around 1.58 million people! 11 out of the 19 industry sectors posted gains across the quarter.
Top five most clicked stories
- Tony Featherstone: 3 stocks to sell before EOFY [17]
- Tony Featherstone: 4 stocks for the new financial year [2]
- Peter Switzer: Are ETFs overdone? Let’s get real! [1]
- Paul Rickard: 7 actions to take before the end of the financial year [3]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [6]
Recent Switzer Super Reports
- Thursday 22 June 2017: IPO Watch [18]
- Monday 19 June 2017: ETFs in focus [19]
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.