[table “128” not found /]
With little help from economics or earnings news, and absolutely diddly squat from the Reserve Bank on Cup day (with a no cut decision), our stock market looks in need of an external event to make it go one way or the other. Before this morning, it was thought we might get just that, with the US October jobs report.
And we did, with October job creation expected to come in at 180,000 but the actual number was 271,000! That screams that we might be seeing mixed economic data in the US but the Yanks are creating jobs and unemployment fell from 5.1% to 5%.
This increases speculation that the Fed will move to raise rates for the first time since the GFC, taking the official Fed interest rate away from just a tick over zero. With two hours of trade to go, the Dow was up 40 points, which shows market players don’t know if they need to be sellers or buyers on the news!
This quote from John Bredemus, vice president, Allianz Investment Management, sums up the important point: “Long term, it’s clear the economy is stronger and equities will be back.” (CNBC)
Yep, the short-term reaction could be to sell off shares but, longer term, the news is that the US economy is starting to do what economies are supposed to do, i.e. create jobs and grow. So stocks will go up for some time, until interest rates rise too high. Love normalisation!
Back home and despite the annoyance I have expressed at the RBA’s crazy position, the big bank still thinks the economy is actually doing better than was hoped but still says it has an “easing bias”. This sounds crazy when they see what the big four banks are promising with their rate rises later this month and other banks will follow – banks do that!
You might remember that I thought the RBA was right leaning against cuts and pressure from some negative economists. However, I changed when the banks threw this unexpected curve ball of higher home loan interest rates to partly pay for their imposed capital issuances via APRA.
The RBA should have adopted a Robert De Niro like stance of “if somebody messes with me, I’m going to mess with him”, however Glenn Stevens is about as different to De Niro as Malcolm Turnbull is to Tony Abbott!
If the RBA had cut and had said it was doing it to offset the negative effects of the banks’ rate rises, then there wouldn’t have been a bad message and it could have helped our stock market and our economy, internally. We need external help to push stocks higher and this jobs number could be it.
I have to say it was heartening to hear that the Fed boss, Janet Yellen, had said she and the Federal Open Market Committee (FOMC) expected the economy to grow “at a pace that’s sufficient to generate further improvement in the labor market, and to return inflation to our 2 percent target.”
Add this to a great jobs report and it increases the likelihood of the Fed’s first-rate rise at the December meeting of the FOMC.
Now I accept that the rate rise could spook the stock market but I’d be jumping in and buying what I reckon would be a great dip to get set for a rebound, after investors accept that the Fed raised because the US economy is looking better than many expected!
It could ruin the Santa Claus rally but Christmas would simply come in January for the stock market.
This morning’s summary is: “Good on you, Yanks!”
What I liked
- Those US job numbers!
- The Australian Institute of Petroleum says the national average Australian price of petrol fell by 1.5 cents a litre to 124.7 cents a litre in the week to November 1 (an 8-month low), which has to help demand and growth.
- Purchasing manager surveys across the globe generally met expectations, supporting investor sentiment.
- Preliminary figures point to new US auto sales running at an 18.2 million annual rate in October, up from forecasts near 17.7 million.
- US chain store sales were up 1.9% on a year ago in the latest week, up from 1.5% in the previous week.
- The ISM services index in the US rose from 56.9 to 59.1 in October, above forecasts near 56.5.
- Local retail sales rose by 0.4% in September, in line with expectations. Sales are up 3.7% on a year ago. These retail numbers will help GDP, which is out early in December.
- Those US job numbers have taken the Aussie dollar down to 70.4 US cents, which is good for the economy but not for my overseas holiday!
What I didn’t like
- The RBA decision on Tuesday but you know that!
- This from Craig James at CommSec on the RBA: “The Reserve Bank intimated on Tuesday that the economic outlook was improving, while at the same time noting inflation was lower than expected. Clearly that gives the Reserve Bank scope to cut rates, if needed. But the Reserve Bank isn’t giving any indication that it intends to act on that ‘easing bias’ any time soon.”
- This from Shane Oliver of AMP: “US September quarter earnings have come in better than expected but still down slightly. 86% of S&P 500 companies have now reported, with 73% beating on earnings and consensus earnings expectations for the year to the September quarter have improved from -6.3% three weeks ago to -2.8%. Revenue has been disappointing though, with only 44% of companies beating on sales, as the strong $US and falling oil price have weighed. These drags will recede though if the $US and oil price stabilise.” (This was better than expected but I want to see a revenue spike when the December quarter numbers come in.)
- I backed United States because he won the Moonee Valley Cup in record time. He’s owned by Lloyd Williams, had the best jockey in the world in Joao Moreira and had a great barrier. I ignored that he only beat Prince of Penzance, the 100/1 winner, by half a length! Bad research costs money and I like great research for stocks, so why not for the four-legged lottery! (I also backed The United States because of the omen that I have been backing U-S-A since QE and this morning those job numbers are better than a Cup win!)
Top Stocks – how they fared
[table “127” not found /]The week in review
(click the blue text to read more)
- This week I told you why I’m not a bank basher – I’m a bank buyer! [1]
- Paul Rickard gave his update on the SSR model portfolios [2] – our growth portfolio is up 2.83% this calendar year, while the income portfolio is down 0.36%.
- James Dunn gave you five dollar dazzlers to consider [3] – Peet & Co. Limited (PPC), Mayne Pharma (MYX), Whitehaven Coal (WHC), Transfield Services (TSE) and Grays eCommerce (GEG).
- The brokers upgraded Incitec Pivot and Mount Gibson Iron [4], and in our second broker report [5], Panoramic Resources got an upgrade.
- Our Super Stock Selectors [6] liked Transurban Group and Bega Cheese.
- Tony Featherstone said the patient investor could be rewarded by these five small- and mid-cap industrial stocks [7] – 3P Learning (3PL), IFM Bentham (IMF), Spotless Group Holdings (SPO), Greencross (GXL), DuluxGroup (DLX).
- This week’s Fundie [8], Paul Kasian from Equity Trustees, said CBA is the strongest domestic bank due to a “strong capital base, dominant market position, low funding costs… and significant exposure to low capital intensity assets”.
What moved the market
- Wall Street dipped after the Fed Chair, Janet Yellen, said a December interest rate rise could be a “live possibility”.
- The local market moved higher, briefly, after the RBA decided to keep rates on hold at 2%, but hinted at a further cut down the track.
- The market took a turn lower on the back of NAB trading ex-dividend, and CBA posting its first quarter profit update.
The week ahead
Australia
- Monday November 9 – Job advertisements (October)
- Monday November 9 – Tourist arrivals (September)
- Tuesday November 10 – NAB business survey (September)
- Tuesday November 10 – Housing finance (September)
- Wednesday November 11 – Consumer confidence (November)
- Thursday November 12 – Employment/unemployment (October)
- Thursday November 12 – Credit/debit card lending (September)
- Friday November – Lending finance (September)
Overseas
- Sunday November 8 – China exports and imports (October)
- Tuesday November 10 – China inflation (October)
- Wednesday November 11 – China monthly data (October)
- Friday November 13 – US Producer prices (October)
- Friday November 13 – US Retail sales (October)
- Friday November 13 – US Consumer sentiment (November)
Calls of the week
- In this week’s Switzer Super Report, Charlie Aitken said he expects an increase in growth stocks outperforming yield plays, and tips Vitaco and Qube [9] as future winners.
- The San Francisco 49ers made the call to cut Jarryd Hayne from the team’s 53-man active roster, placing him on the team’s practice squad.
- And it wouldn’t be Halloween without Jimmy Kimmel’s “I ate all the candy” segment [10], where a bunch of US parents tell their kids they ate all their treats. The reactions are priceless!
Food for thought
“I want to say to everyone else, get stuffed, because they think women aren’t strong enough – but we just beat the world”
– 2015 Melbourne Cup winner, Michelle Payne.
Last week’s TV roundup
- Are bank stocks in buy territory? George Boubouras from Contango Asset Management joins the show to discuss this and more [11].
- Charlie Aitken from Aitken Investment Management shares his latest views [12] on the stock market, the economy and the banks.
- In this week’s Super Session we review the month of October [13] and reveal the best performing stocks.
- We talk to chartist extraordinaire [14], Gary Stone of Share Wealth Systems, to see where he thinks the market is headed.
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 Metcash, with a 1.62 percentage point increase in the proportion of its shares sold short to 22.81%. Myer’s short position increased by 1.35% to 19.77%.
[15]My favourite charts
Car sales zoom higher
[16]Aussies love their cars, with 94,321 new vehicles sold during October, and a record 1,146,194 new vehicles sold in the year to October 2015! That kind of consumer spending has got to be good news for the economy!
Optimistic outlook for business
[17]I wasn’t happy that Governor Glenn didn’t cut the cash rate on Cup Day, but the RBA statement was upbeat on the nature of business surveys, which suggest a gradual improvement in conditions – particularly over the past year. This chart was one of many included in the RBA chart pack on the Australian economy and financial markets. You can take a look here [18].
Top 5 most clicked on stories
- James Dunn: Dollar dazzlers – five stocks to look at [3]
- Peter Switzer: I’m not a bank basher. I’m a bank buyer! [1]
- Charlie Aitken: Look for growth companies [9]
- Tony Featherstone: Patience game: five small- or mid-cap industrials [7]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [4]
Recent Switzer Super Reports
- Thursday, 6 November, 2015: Big spender [19]
- Monday, 2 November, 2015: Which bank? [20]
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.