Wall Street was down overnight on lower oil prices and slightly weaker manufacturing data but, in reality, this is a typical profit-taking tactic by those who buy and sell regularly. This is what these people do.
Now to the real story of the week.
I warned that we were in the hands of central bankers this week and it looks like they were a safe pair of hands at the Bank of Japan (BoJ) and the Fed, especially if you’re in that majority of rational investors who prefer rising share prices.
Don’t you feel sorry for short sellers? Not!
Be clear on this: the new Governor of the Reserve Bank, Phil Lowe and his central banks mates around the world, are taking some risks letting the money supply spin out but the goal is simple: more global economic growth. And if that happens, it underpins profitability and then share prices.
What’s the alternative? Do nothing? Rein in the money supply and pay off debts killing demand, hurting growth and job creation? This is a great idea if you don’t mind a recession, collapsing share prices and even bigger budget deficits, as unemployment in places like Australia goes from 5.6% to 10%!
Sensible people (and central bankers are exactly that) know this is the better game in town, following the GFC that bred a potential Great Depression. I for one am happy with the gamble of central bankers worldwide. Go Phil and his central bank mates!
So what did they deliver this week? Try this:
- The S&P/ASX 200 is above 5400, finishing at 5431. That’s a 56-point gain on Friday (and 2.5% for the week).
- Banks and miners are back in favour, with the USA’s likely increase in rates in December and central bank talk that suggests no more new negative rate settings. However, in the case of Japan, the BOJ will throw money at the problem until that economy starts to grow faster.
- Resource stocks are back in favour, with BHP’s target price being pumped up by analysts to around $25 – gotta hope they’re right.
- There is a rotation going on from safe, old dividend-payers to growth stocks, such as the miners and industrials, and a new term “expensive defensives” is being bandied around. Of course, if you bought your dividend payers some time ago, it’s a moot point because your yield goes back to the buy-price and the dividend dollars are pretty safe with the likes of the banks. Deutsche Bank during the week tipped that bank dividends will remain elevated going forward.
- What about Woolies up 2.6% for the week to $23.35 and when you add in the bounce-back of the miners plus the banks and now WOW, that top 20 stocks contrarian play I put out there a few months ago is looking like a pretty good call. I think I argued at the time that when you’re a contrarian with the top 20 companies in Australia, it’s not too risky for a long time.
- Optimism has been helped by the implied message from central banks that rates going lower might be a thing of the past but it doesn’t mean rates are about to rise.
- Gold’s back in favour and while I can come up with heaps of theories for this move, I simply don’t invest in stuff I can’t understand and it’s why I don’t ‘punt’ on the Oz dollar directly. I take positions of where I think it’s trending and what stocks will benefit but I know that damn Aussie dollar is as confusing as the laws of rubgy and the men in white who interpret those laws!
- Coal prices continue to rise and who saw that? However, it’s another good sign for economic growth and right now the views on Chinese economic growth are getting a tad more positive. In case you missed it, Goldman Sachs has increased its 2017 forecast for premium hard coking coal from Queensland by 64% to $US135 a tonne. It raised its 2018 estimate by 47% to $US125!
- From the economic left field and while German economic growth is set to taper, the Syrian refugee influx will soften the impact!
What I liked
- UBS lowered its unemployment target for Oz from 6% to 5.7% and we’re now at 5.6% – oops!
- The Internet Vacancy Index – a measure of job vacancies in Australia published by the Department of Employment – rose by 0.9% in August to 166,800 and stands 7.8% higher than a year ago. The ICI is just below the 4-year high set in June. “The job market continues to improve. And as unemployment falls with a tightening job market, the risk is that both wages and prices will start to rise. And in that situation, further rate cuts will be removed from the agenda,” said CommSec’s Craig James.
- This from the RBA minutes: “Taking into account the recent data, and having eased monetary policy at its May and August meetings, the Board judged that the current stance of monetary policy was consistent with sustainable growth in the Australian economy and achieving the inflation target over time.”
- The CBA’s economy-wide spending gauge had the biggest rise in nine months!
- The Bureau of Statistics reports that Australian home prices rose by 2% in the June quarter to stand 4.1% higher over the year.
- The NAHB housing market index in the US rose from 59 to 65 in September and marked the strongest reading in 11 months.
- This from Michael Arone, chief investment strategist at State Street Global Advisors on market players: “I think they are looking for the next new thing and they’re hoping that it will be fiscal policy.” He pointed to both Hillary and Donald promising big fiscal spending increases and that countries like Canada and Japan have also raised government spending trying to boost their economies. (CNBC)
- Dallas Fed President Robert Kaplan tipped growth would rebound in the second half.
What I didn’t like
- Time to get out for a week or so? Since 2000, the Dow has been down 83% of the time after a Presidential debate and there’s one on Monday. The Dow’s average loss is 1.5%.
- The Euro zone PMI showed that business activity in the 19-country region fell to 52.6 in September versus 52.9 in August.
- The September read on the Markit Manufacturing Flash PMI came in at 51.4, below the August read of 52.0.
- Next week, a pile of Fed officials will deliver their views on the US economy. When the Fed team speaks individually, some crazy things are said and markets respond crazily!
- Oil was down about 4% for a time overnight but it’s all ahead of the oil producers meeting in Algiers next week.
And what I really didn’t like…
Feng shui master, Master Feng, who has had a 100% record picking election results for 18 years told me on my Thursday TV show that Donald Trump would be the 45th President of the USA! This is bad news for anyone who believes in predetermination and could be bad for stocks after November 8, at least for a while. I’ll leave that one for you to consider!
Top stocks – how they fared
[table “213” not found /]The week in review
- This week, I explained why you should keep the faith in dividend paying stocks [1].
- Is it time to look at fixed income? James Dunn explored one of the gaping holes in the asset allocation of SMSFs [2].
- The brokers placed REA Group in the good books while Myer was in the not-so-good books [3]. In our second broker report, BHP and Boral were upgraded [4].
- Stephen Bruce of Perennial Value Management revealed [5] two investments he likes right now.
- Our Super Stock Selectors [6] placed CBA on their likes list, but JB Hi-Fi was out of favour.
- Charlie Aitken explored the contrasting performances of the ASX 200 and the economy and what it means for investors [7].
- Tony Featherstone tipped five small-cap stocks [8] to consider if you’re hungry for better returns – Data#3 (DTL), Aventus Retail Property Fund (AVN), Nick Scali (NCK), CBL Corporation (CBL) and ImpediMed (IPD).
- And Tony Negline explained what the Government’s recent super policy changes mean for you [9].
What moved the market?
- The Aussie market surged after the US Fed held fire on rates.
- Share markets also rose on Japan’s decision to keep rates on hold and overhaul its stimulus policies.
Calls of the week
- The RBA’s Philip Lowe said the RBA isn’t full of “inflation nutters” in his opening speech to the House of Representatives Standing Committee on Economics. Are the odds looking less likely for a Melbourne Cup Day rate cut?
- The Fed flagged the possibility of a rate cut by the end of 2016.
- Facebook’s Mark Zuckerberg and his wife Priscilla Chan pledged $US3bn over 10 years to help “cure, prevent or manage” all disease by the end of this century.
- And Hollywood’s highest profile couple – Brad Pitt and Angelina Jolie – called it quits.
The week ahead
Australia
- Wednesday September 28 – Engineering construction (June quarter)
- Thursday September 29 – Job vacancies (August)
- Thursday September 29 – Financial accounts (June quarter)
- Friday September 30 – Private sector credit (August)
Overseas
- Monday September 26 – US New home sales (August)
- Tuesday September 27 – US Case Shiller home prices (July)
- Tuesday September 27 – US Consumer confidence (September)
- Tuesday September 27 – US Richmond Fed survey (September)
- Wednesday September 28 – US Durable goods orders (August)
- Thursday September 29 – US Economic growth (June quarter)
- Thursday September 29 – US Pending home sales (August)
- Friday September 30 – US Personal income/spending (August)
- Friday September 30 – US Chicago purchasing (September)
- Saturday October 1 – China purchasing managers (Sept)
Food for thought
- “Always deliver more than expected.” — Larry Page, Google co-founder
Last week’s TV roundup
- To discuss where global markets are heading and the stocks he likes right now, Gary Stone of Share Wealth Systems joins the show [10].
- Lance Lai from Accountancy Invest reveals what the charts are saying about the Aussie dollar and markets [11].
- How is George Boubouras from Contango Asset Management playing the market? Find out here [12].
- To share his thoughts on resources and bond proxy companies, FNArena’s Rudi Filapek-Vandyck joins the show [13].
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 the biggest mover was Western Areas with a 1.50 percentage point increase in the amount of its shares sold short from 11.77% to 13.27%.
Source: ASIC
Chart of the week
Companies become pro-women!
Aussie companies are getting in touch with their feminine side, with the amount of women on boards on track to hit 30% by 2018. The Australian Institute of Company Directors has set this goal.
The King of Charts trumps the doomsday merchants!
The King of Charts, Lance Lai from Accountancy Invest, is optimistic on the direction of the local market. Since he came on my show on Monday, the market has headed towards 5,400 and he thinks it will reach T2 and T3 in the immediate future – that’s close to 5,600! No pressure Lance.
Top 5 most clicked on stories
- Peter Switzer: The calculations behind why you have these dividend stocks [1]
- Tony Featherstone: Five small-cap stocks in the hunt for better returns [8]
- James Dunn: Time to look at fixed income? [2]
- Peter Switzer: Dividend stocks could be beaten up. Here’s what to buy! [14]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [3]
Recent Switzer Super Reports
- Thursday 22 September: Economy vs. earnings [15]
- Monday 19 September: Dividend payers [16]
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.