News out of the USA was great for stocks – especially tech stocks – but there was also a pretty impressive economic growth number that kept stocks positive.
The first reading on third-quarter GDP showed the US economy grew by 3%, which was above the estimate of 2.5%.
“There were some inventory disruptions because of the hurricane but the economy is doing pretty well,” said David Kelly, chief global strategist at JPMorgan Funds.
“Hurricanes Harvey and Irma struck parts of Texas and Florida in late August and early September. Excluding inventory investment, the economy grew at a 2.3 percent rate, slowing from the second quarter’s 2.9 percent pace,” CNBC reported.
But the bigger news was what the tech-giants revealed and how the stock market reacted. Amazon, Microsoft and Google-parent Alphabet saw their stocks rise 13.3%, 7% and 5.5% respectively, and these are from already elevated levels.
Not surprisingly, the Nasdaq and S&P 500 indexes went into record territory again!
Ominously for local retailers, Amazon shot the lights out, though it was not via its online retail operations.
Amazon’s earnings per share came in at 52 cents a share, rather than the 3 cents predicted by Thomson Reuters. It’s Amazon Web Services, which is the company’s cloud business, was its main driver for growth, with sales leaping 42% year-on-year.
In January 2016, this was a $US308 stock but overnight it broke US$1,100!
“We would characterize last night’s Amazon September results as a ‘Picasso-like quarter’, with the company handily beating all metrics across the board,” Daniel Ives, head of technology research at GBH Insights, said in a note Friday. (CMNC) “Last night’s quarter … is another feather in Bezos’ cap.”
Anyone trying to work out why our stock market has not gone gangbusters like the US market only needs to look at the success of America’s tech stocks.
Locally, we’ve seen a new way to lose money on Friday when our stock market lost a positive lead because Barnaby Joyce has to go to a by-election, which he should win in a canter! Sure, until it happens, there will be some concerns about the Turnbull Government but I bet all will be forgiven when this US story is thought through.
Okay, I get it, the Turnbull Government has lost its one seat majority because the High Court has ruled Barnaby is a damn Kiwi, but I think the fact that we’re hovering out of the sideways trap we’ve been in with the S&P/ASX 200 Index since April, means there are those who want to bet we will fall back into it.
If we do, it will be short term, unless Donald Trump screws up his passage of his tax package through Congress. Anyway, I guess I shouldn’t be whinging because we only lost 13 points or 0.2% to end at 5903. The loss for the week was only 0.1%, which tells me that the doubters about our stock market are finding it hard to easily outweigh the believers.
A few weeks ago, our SWTZ or Switzer Dividend Growth Fund oscillated between $2.47 when buyers rushed in and $2.53 when sellers took profit. However, this week we seem anchored around $2.55 and it could be an indicator that the inclination to believe the sideways trap persists is losing supporters.
I believe SWTZ will ride up with any persistent positivity for stocks over November and December and I think others agree.
I liked this from Michael Gable of Fairmont Equities, who told Fairfax Media that “Friday’s quick move was just a kneejerk reaction. Now that we’ve properly broken out of the tight trading range the ASX has been in for months, investors will probably look through the news from Canberra.”
A more important market story was Macquarie’s half-year results, which came with a lifting of guidance and a buyback offering. Its shares spiked 3.9%, so bless those dear little workers in the millionaires’ factory!
And while the other banks did not join the party, as a group they were up about 2% for the week. That’s another nice omen for the market believers. And also hats off to Resmed with its first quarter update showing an 11% rise in quarterly revenue and, not surprisingly, its share price rose a solid 4.9% on Friday.
So what could help positivity? The lowering dollar, which dropped a tad on Barnaby and the gang of four ‘foreigners’ losing their appeal to the High Court. The decision left the dollar at 76.41 US cents but not long ago it was 80 US cents and this has helped our stock market sneak out of the sideways trap.
With the Fed set to raise US interest rates in December and maybe three times next year, while our inflation rate at 1.8% screams don’t expect a rate rise here soon, you have to tip our dollar will give into gravity over 2018. This won’t just help the economy grow, it will send stock prices higher and remember a stock market often runs six months ahead of positive or negative influences.
Last night on Wall Street will help to keep stocks sneaking higher, provided no curve balls get tossed from Washington, North Korea or the boys at OPEC.
What I liked
- The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.8% last week to 113.3 after falling 1.2% in the prior week. Confidence is above the average of 113.2 since 2014.
- This on China: “Moody’s Investors Service says that the further consolidation of power under President Xi Jinping could advance the process of economic reform and rebalancing, because one obstacle to reform has been the misalignment of incentives between the central leadership and other officials.” (SMH)
- The European Central Bank announced plans to halve its bond buying program from €60bn to €30bn per month, starting in January 2018. The program, however, is being extended until at least September 2018. There was no change in interest rates.
- US earnings from key companies are doing better than expected.
- US durable goods orders increased by 2.2% (forecast: +1.0%) in September, new home sales surged by 18.9% to 667,000 units (forecast: -0.9%, 555,000 units) in September and home prices rose by +0.7% (forecast: +0.4%) in August.
- The US Markit flash manufacturing index rose from 53.1 to 54.5 in October, with the services index up from 55.3 to 55.9.
- The National Activity index in the USA rose from minus 0.37 points to +0.17 points in September.
- This on US tax reform from AMP’s Shane Oliver: “Progress continues towards tax reform in the US with the House passing the Senate’s 2018 budget, which will allow tax reform to proceed under the so-called budget “reconciliation” process. Our assessment is that it now has a 70% chance of getting up by early next year.”
What I didn’t like
- The Consumer Price Index – the main measure of inflation in Australia – rose by 0.6% in the September quarter, below expectations for a lift of 0.8%. In seasonally adjusted terms, the CPI rose by 0.4%. The annual rate of inflation fell from 1.9% to 1.8%. A little more inflation would be good for confidence in the economy. However, here is my take on inflation nowadays [1].
- The producer price index (PPI), or final stage prices, rose by 0.2% in the September quarter to stand 1.6% higher than a year ago. Domestic prices rose by 0.4% in the quarter. And preliminary prices posted a 0.5% gain in the quarter. We need more inflation!
- CommSec calculates that the ratio of export prices to import prices (terms of trade) fell by around 1.4% in the September quarter after declining 6% in the June quarter.
- RBA Deputy Governor Debelle’s reference to sizeable spare capacity in the labour market and a flat Phillips curve, which implies ongoing RBA concern about low wages growth.
I’m back!
After my near-death experience, I’m back on TV on Monday, which coincides with our brilliant new studio in the News Corp building in Sydney. After months of a makeshift studio, I’ll again be able to interview face-to-face with guests sitting beside me! And on Wednesday I’ll be talking to David Murray (ex CBA CEO) on the upcoming CBA AGM and what the directors might have to cop from shareholders. And real estate guru, John McGrath, will look at the outlook for property with Sydney and Melbourne markets cooling. We’ll also talk about his bruising experience turning his successful huge, private business into a listed company.
It’s good to be back in the saddle!
Top Stocks – how they fared
What moved the market?
- The US markets reached record highs, as company earnings reports surprised on the upside. US Dollar jumped as the Euro tumbled following the dovish read of the European Central Bank’s policy update
- The ABS reported that the consumer price index for the September quarter came in at a lower than expected 0.6%, taking the annual gain in inflation to 1.8%. With both the headline and underlying rates below the RBA’s target range of 2.0% to 3.0%, expectations of an increase in the cash rate were pushed back further.
- The Australian dollar dropped to 76.38 US Cents after Barnaby Joyce was deemed ineligible to remain in parliament,
Calls of the week
- Charlie Aitken [2] made a call that the bond market may be the greatest bubble he’s ever seen.
- The High Court ruled Barnaby Joyce was invalidly elected
- Head of the NRL’s match fixing probe said that some NRL players have themselves so deep in debt they owe more money in gambling repayments than what their contracts are worth.
The Week Ahead
Australia
- Tuesday October 31 – Private sector credit (September)
- Tuesday October 31 – New home sales (September)
- Wednesday November 1 – CoreLogic home prices (October)
- Wednesday November 1 – CBA purchasing managers (October)
- Thursday November 2 – International trade (September)
- Thursday November 2 – Building approvals (September)
- Friday November 3 – Retail trade (September)
- Friday November 3 – New vehicle sales (October trade)
Overseas
- Monday October 30 – US Personal income (September)
- Tuesday October 31 – US Employment costs (Sept quarter)
- Tuesday October 31 – China purchasing managers (October)
- October 31/November 1 – US Federal Reserve meeting
- Wednesday November 1 – US Case-Shiller home prices (August)
- Wednesday November 1 – US Consumer confidence (October)
- Wednesday November 1 – US ADP employment (October)
- Wednesday November 1- US ISM manufacturing (October)
- Friday November 3 – US international trade (September)
- Friday November 3 – US Non-farm payrolls (October)
- Friday November 3 – US ISM services (October)
Food for thought:
“There are no secrets to success. It is the result of preparation, hard work, and learning from failure”. Colin Powell
Last week’s TV roundup
- BetaShares chief economist, David Bassanese [3] joined Switzer TV to discuss his thoughts on Bitcoin and whether or not central banks will be forced to embrace the chance (broadcast Monday 23 October 2017)
- Morgan’s Chief Economist Michael Knox [4], joins Switzer TV to talk about the economy and where it is heading (broadcast Monday 23 October 2017).
- Phillip Capital’s Michael Heffernan [5] joined Switzer TV to share his market update and how he is investing right now (broadcast Wednesday 25 October 2017).
- With one of the fastest moving stocks this year, Tim Levy [6] of Family Zone joined Switzer TV to discuss the cyber safety market (broadcast Wednesday 25 October 2017).
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 Syrah Resources, with its short position increasing by 3.37 percentage points to 22.66.
Charts of the week:
Source: Commsec
Top 5 most clicked
- Peter Switzer: What shorted stocks might be good value? [7]
- Paul Rickard: How to play rising interest rates [8]
- Charlie Aitken: Bond yields breaking higher, what does it mean for your portfolio? [9]
- Rudi Filapek-Vandyck: Buy, Hold, Sell: What the brokers say [10]
- Staff Reporter: Hot stocks: Donuts, insurance and engineering [11]
Recent Switzer Super Reports:
- Thursday, 26 October 2017 – Bonds and Beauty [12]
- Monday, 23 October 2017 – Positioning your portfolio [13]
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.