[table “176” not found /]
Friday the 13th might have been a down day, with the S&P/ASX 200 index down 30 points, however, for the week, we put on 0.7%, though once again that 5400 level proved to be a psychologically tough nut to crack. Let’s face it, we were down to around 4700 in early February and we’re now at 5329, so that’s a 13% gain. All up, this is pretty damn good, considering a lot of expert fund managers on my TV show kept trying to tell me we were in a bear market because we were down 20% from the high last year but it lasted only one day!
That was wishful thinking for those talking their own book and it certainly looks like the negativity of early 2016 was excessive (as called here) but I won’t be surprised if these current levels get tested by economic data revelations and decisions made by central banks in coming months.
Overnight, Wall Street’s Dow Jones index was down over 200 points but buyers eventually showed up before the death, with the most watched market indicator only off 185 points or 1%. So why this negativity in New York?
There was a retail number out, so you’d expect the diving Dow was suggesting that the result was disappointing, given some ordinary profit readings from the likes of Macy’s, The Gap and others during the week. Well if you followed this sensible logic, you’d be wrong, as the retail sales data was in fact good, up 1.3% for April, which was the best gain since March last year!
Consumer sentiment also tracked higher by 6.8 points to a strong 95.8 in May. Reuters put the improving economic outlook this way: “Prospects for consumer spending got a boost from a third report, showing sentiment among households jumped to an 11-month high in early May, driven by steadily rising incomes, better employment prospects and low inflation.”
Why the negativity on Wall Street? It’s simple. The market worrywarts are now thinking that the Fed might raise interest rates in June and it comes when most thought June was off the table. Why? That’s easy. They all thought the US economy was weakening, not improving, as this retail result suggests.
I have been arguing here and on my TV show that maybe the new Internet age is making some old world indicators, such as profits at Macy’s, less reliable.
I think Jack Ablin, chief investment officer at BMO Private Bank, got it right on CNBC with this observation: “I think there’s a sense this strong retail sales could fuel Fed tightening in June. Maybe retailers really are missing the boat on consumers. Consumers are spending money. They’re just not going to traditional retailers.”
On the local front, it’s been a good couple of weeks for our banks, with the bashed bashing up the bashers with some better than expected news. The star was the CBA, which came in with a cash earnings of $2.3 billion and the stock was up 4.1% for the week.
And what about Macquarie, as my colleague Paul Rickard forewarned? On 11 February, it was $59.40. Now it’s $71.70, after rising another 60 cents on Friday. That’s 20% for the bank believers out there, of which I am one, as you probably know.
CMC’s Michael McCarthy thinks the market will be tested around these levels but his sound advice “buy when markets look too low and sell when they look too high” is pretty basic but it makes a lot of sense and has worked time and time again for me, though I must admit that I’m a better buyer than seller!
A part of the softness towards the end of the week was the 6% slide in iron ore prices and oil. While both are holding up, they look a little vulnerable. These two commodities were big pushers of stocks up in recent weeks so when they start to give into gravity, we’re bound to see lower stock prices.
That said, we’re still riding the tail wind of the RBA’s surprise rate cut last week, which has seen the dollar slide from 77 US cents to 73 US cents. This helps dollar-sensitive stocks such as Macquarie, CSL, etc. But a lower dollar is also good for economic growth and so are the lower interest rates, which spurred a big spike in the Westpac consumer sentiment reading of 8.5% to 103, which means optimists now outnumber pessimists. If it wasn’t for the media carrying negative messages from misguided economists, market manipulators and politicians, who have a vested interest in talking things down, then I reckon we’d all see that the economic story right now is pretty damn good (see my story on Switzer Daily [1] this week to see how good the economy really is right now).
Shocks of the week had to be good news for Woolies and Myer. While WOW was wowed by the news of a possible buyer in KKR, the better and more believable story was the better showing for Myer. It must be something about the new CEO Richard Umbers but I hope it also says something better about the consumer. There is mounting evidence that the little Aussie shopper might be becoming a little more positive, with this heading from CommSec: “Personal loans driving lending”, which is a pretty good sign. Savanth Sebastian says “Lending was just 3.9% shy of the 7½-year high recorded in November 2015”, which sounds uplifting for anyone doubting our economic future.
I still believe the current levels will be tested in coming weeks but there’s a lot more support for stocks now than earlier in the year. And if the economic data for the US strengthens, then even with concerns about a rate rise, it will be good, not bad, for stocks. In fact, if the Yanks can raise rates and markets see it as a necessary step to a normal economy, the stock buying could be great for our bottom lines.
What I liked
- This from a so-called challenged Australian economy: loans for new cars were up by 20.4% on a year earlier, while loans for used cars were up 15.5%. Loans for residential blocks of land were up by 9.1% on a year ago.
- I know it’s only a monthly read but in the US, the Federal Budget was in surplus by US$106 billion in April, near forecasts of a US$112 billion surplus.
- The Oz dollar at 73 US cents – we grow faster on a lower currency and I have a good restaurant meal bet with Dr. John Hewson. If we grow faster than 2.5% (the Treasurer’s guess), then the Doc loses and I win!
- The Westpac/Melbourne Institute index of consumer confidence rose by 8.5 % in May to 103.2, after sliding by 4% in April. Now optimists outnumber pessimists.
- The RBA told us that it expects inflation to stay at the bottom of the 2%-3% target band through to 2018 and now some economists are tipping two more rate cuts!
- Greek shares rose to their highest level this year after Euro zone finance ministers agreed to grant Greece additional debt relief, provided it delivers on all its reforms outlined in the latest bailout. The Greek ATG share index lifted by 3.1%. What a difference a year makes.
- German stocks drove higher during the week after the IMF said it had become slightly more optimistic on the German economy.
What I didn’t like
- The average credit card balance fell by $12 (-0.4%) to $3,154.60 in March. In smoothed terms (12 month average), the average balance was down by 1.8% – the biggest fall in two years.
- Usage of credit card limits held near recent 14-year lows. Transactions at automated teller machines in March were down by 6.4% on a year ago.
- Iron ore prices were softer this week, after weaker than expected Chinese trade data. These will have to be watched as, along with oil, they’ve helped our stock market spike.
- Job advertisements fell by 0.8% in April after rising by 0.1% in March but remember, these are up 7% on a year ago.
- The election campaign is annoying me already and I’m hoping this historically too long electioneering period doesn’t spook consumers and business, where confidence levels are the best they’ve been together for a long, long time.
Top stocks – how they fared
[table “175” not found /]The week in review
(click the blue text to read more)
- I told you not to fret [2] about the super changes just yet and explained exactly how the proposed reforms will impact you.
- Paul Rickard explained why the Australian success story Macquarie Bank is in the buy zone. [3]
- Julian Beaumont of Bennelong Australian Equity Partners tipped Ramsay Health Care [4] as a long-term play.
- Barrie Dunstan shared investing extraordinaire Warren Buffett’s three tips [5] on finding a fund manager.
- Our Super Stock Selectors placed NAB and Ramsay Health Care in their likes [6] list but Woolies and Origin were in the not-so-good books.
- Charlie Aitken said the mid-cap super service story [7], Link Administration, is one with excellent medium-term growth prospects.
- Tony Featherstone shared some of the preferred ways [8] to play the cloud-computing megatrend including Xero (XRO), NextDC (NXT) and Asia Pacific Data Centre Group (AJD).
- Melanie Dunn of Accurium explained why it’s important SMSF trustees are aware of the recent changes [9] to the preservation age.
- Co-founder of advisory firm Wealth Enhancers, Sarah Reigelhuth, gave us a sneak peek [10] into her very own SMSF.
- The brokers [11] upgraded Collins Food and downgraded Super Retail Group. In our second broker report [12], the brokers upgraded Macquarie Group and downgraded Capilano Honey.
What moved the market
- A lift in global oil prices helped some of our oil majors move higher.
- The Westpac-Melbourne Institute consumer sentiment reading – which rose by 8.5% in May to 103.2.
- CBA’s third-quarter report also helped our local market spike up.
- Wall Street felt the pinch from disappointing quarterly reports from the likes of Disney and Macy’s and a share price drop from Apple.
The week ahead
Australia
- Tuesday May 17 – Reserve Bank Board minutes
- Tuesday May 17 – Weekly consumer confidence
- Tuesday May 17 – New vehicle sales (April)
- Wednesday May 18 – Wage price index (March quarter)
- Wednesday May 18 – Speech by Reserve Bank official
- Thursday May 19 – Employment/unemployment (April)
- Friday May 20 – Business Sales index (April)
Overseas
- Monday May 16 – US Capital flows (March)
- Monday May 16 – US NAHB housing market (May)
- Tuesday May 17 – US Consumer prices (April)
- Tuesday May 17 – US Housing starts (April)
- Tuesday May 17 – US Industrial production (April)
- Wednesday May 18 – China home prices (April)
- Wednesday May 18 – Federal Reserve minutes
- Thursday May 19 – US Philadelphia Fed index (May)
- Thursday May 19 – US Leading index (April)
- Friday May 20 – US Existing home sales (April)
Calls of the week
- BHP’s CEO Andrew Mackenzie said the company could boost its current value by more than 70%! It’s a bold call, but I like his optimism!
- My mate Charlie says Link Administration [7] is his number one play on the Australian super services growth sector and thinks it could prove to be a ‘’structural grower’’.
- According to the investment bank JP Morgan, the cash rate is likely to go to 1% by June next year, and even our Switzer Daily expert David Bassanese [13] says he can see the RBA cutting at least once or twice by the end of the year. But he says it’s not a time to be fearful, it’s a time to rejoice!
Food for thought
The major value in life is not what you get. The major value in life is what you become.
– Jim Rohn – US entrepreneur
Last week’s TV roundup
- Are there any dividend stocks [14] that still look attractive in this low rate environment? To discuss, George Boubouras of Contango Asset Management joins the show.
- Should you sell in May and go away, or buy in May and stay? To discuss this and more, Aitken Investment Management’s Charlie Aitken joins Super TV [15].
- Switzer Super Report’s Paul Rickard joins Super TV [16] to answer your super questions from the budget. Click here [17] for part 2.
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 Myer Holdings, with a 3.91 percentage point increase in the proportion of its shares sold short from 11.19% to 15.10%.
[18]Source: ASIC
My favourite charts
Consumer confidence makes it move in May
[19]Who wouldn’t like a chart that shows the Westpac Melbourne Institute of Consumer sentiment jumping by 8.5% in May to 103.2? By cracking the 100-mark, we’ve just stepped over the line into happy consumers and that makes me happy!
Are these cheap air fares for real?
[20]Discount airfares fell over 5% in May and are down 3.8% on a year ago (in smoothed terms). But before you get too excited, watch this video [21] for a light-hearted look into the troubles you could face while flying on the cheap!
Top 5 most clicked on stories
- Peter Switzer: Don’t cut your wrists over super changes…just yet! [2]
- Julian Beaumont: Stocks for the long-term [4]
- Paul Rickard: Is Macquarie in the buy zone? [3]
- Charlie Aitken: Sell in May? [22]
- Charlie Aitken: Link administration: a super story [7]
Recent Switzer Super Reports
- Thursday, 12 May, 2016: Linked to growth [23]
- Monday, 9 May, 2016: Don’t worry [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.