[table “177” not found /]

Don’t get too carried away but it’s possible that stock market influencers might be either getting a little less negative on stocks, because the economic and corporate earnings signs are looking a little more positive, or, heaven forbid, they’re getting more real when it comes to the next US interest rate rise.

Why do I think this? Well, economic news in the US is getting better but Wall Street players have been hearing that a September rate hike could now come in June. (FYI, the Dow was up 65 points overnight in the US). And some Fed Presidents are suggesting there could be two or three rate rises this year, when only two weeks ago, the market was betting on one!

That’s a lot of growing up for US market drivers.

And for our part, as the Yanks look to be getting more comfortable with their overdue rate rise, the subsidence of excessive fear about our future, linked to a possible commodity price slide, must be explaining why we’re now up six weeks in a row!

And this is May! Ooh ah.

By the way, there’s still a lot of seasonal time left for smarties to sell and runaway and Marcel Von Pfyffer (my mate, despite the fact he’s a hedge fund manager!) strongly hinted that he’s taking profit. And why wouldn’t you after our six weeks of market rises, which have brought around a 14% gain for the overall market? I hope he gets his butt fried because when he wins, I temporarily lose (not being a trader but if I was, I guess I would’ve sold BHP when it was well over $20, as a $4 profit in a few weeks would have been irresistible to a trader/hedge fund manager).

Anyway, that’s by the by. The real issue is why is this resilience against a sell off happening? This then leads us to the question: Can this resilience keep happening?

First of all (as I’ve implied), commodity prices are holding up, despite a pullback from the inexplicably high levels we saw a few weeks ago but they’re still good levels. And despite the best efforts of a lot of ‘experts’ out there to talk down our banks, their balance sheets, their likely increased regulation, Royal Commissions, the ‘likelihood’ of a housing collapse and every other negative these SOBs can come up with, bank share prices have headed north.

Banks are so much back in favour that Charlie Aitken, ST Wong and other experts on my TV show like Clydesdale Bank, which the NAB gave away recently for a virtual song! I’m really glad sometimes that I’m a reluctant seller and pathetic hoarder.

Undoubtedly, the oil price is a great foundation for our stock market and it has to be helping the S&P 500 in the US, as we saw that index butchered when oil slid into the mid-$US20 a barrel mark earlier this year.

Locally, I like a lot of stuff I’m seeing from a gut-feeling point of view, such as Myer doing well. My inside info on the new CEO, Richard Umbers, is that he’s pretty damn good. Myer decided to close two stores this week, showing he can make tough decisions. If you’re going to do anything, it’s smart to do it for money reasons.

And what about Metcash up 6.1% on Friday and 15% for the week?! In February, there was a China takeover story around but that’s a bit of smoke, whose fire I have to go looking for.

Back to the US and two pieces of news grabbed me this week. First, Wall Street thinks the monthly jobs report is only good if the numbers are close to 200,000 but the Fed’s Janet Yellen would be happy with, wait for it, 100,000. And two of her Fed colleagues have lower expectations of a good number. And there’s one other who thinks 125,000 would be a ripper result.

Over the past 12 months, the jobs delivered were over 200,000, so this increases the chances of a rate rise sooner rather than later. Still, Wall Street isn’t panicking, just yet. It could be because the New York Fed’s instant read of 2nd quarter GDP was 1.7%, which was a 0.5% upgrade in just one week. Why? Better economic data but this, believe it or not, is too negative for the USA. CNBC tracks 12 economists’ GDP guesses and it’s now at 2.5%, up from the 0.9% guess in the 1st quarter. The range is interesting too, at 1.9% to 2.8%. That’s why a rate rise looks imminent, especially when we’re seeing inflation on the go at last in the US.

Sure, when the rate rise comes, the market will test it out but I think the run of economic data will win through. And this will be a great dip to be a buyer in but that’s a Switzer story for the future.

Go the USA!

What I liked

• A lot of the stuff above.
• This BBC headline: “Japanese economy avoids recession”, with the world’s third-biggest economy growing at an annualized rate of 1.7%.
• The CBA’s Business Sales Indicator found, at a sectoral level, that 14 of the 19 industry sectors expanded in trend terms in April, a similar result to March and sales rose in six of the eight states and territories in April.
• The ANZ/Roy Morgan consumer confidence rating rose by 1.1% to 115.1 in the week to May 15. Confidence is up 0.4% over the year and above the average of 112.1 since 2014.
• The Sydney-Melbourne airline route, which CommSec says is a key indicator of business activity. Passenger numbers in the year to March hit a record 8.7 million. But smoothed annual growth slowed from a 29-month high of 4.1% to 3.6% in March.
• The US leading index rose by 0.6% in April.
• The Fed minutes telling the world if the economic data is good, then expect a rate rise, though many think the Brexit vote on June 23 could delay the Fed. Why? Well, try this NY Times headline: Brexit,’ a Feel-Good Vote That Could Sink Britain’s Economy.
• This run of economic data on Tuesday in the US: housing starts rose by 6.2% in April to a 1.172 million annualised result in April (forecast: 1.127m). Building permits rose by 3.6%. Consumer prices rose by 0.4% in April (forecast: +0.3%). It was the biggest rise in three years. And industrial production rose by 0.7% in April (forecast: +0.3%). Capacity use rose from 74.8% to 75.4%. Go the USA!

What I didn’t like

• Retiring RBA board member and mate of mine, John Edwards, bagging the Government for not reigning in the Budget, when it has been Labor and the Senate who stopped Joe Hockey’s first and ‘unfair Budget’. This is why I want the next Government, no matter who wins, to have control of the Senate so there are no excuses if the Budget Deficit isn’t whittled down.
• Telstra with more power outages. Is it a problem for the network or is it because it has too many damn customers? That’s a big topic for me to pursue this week.
• The local wage price index rose by 0.4% in the March quarter, after a 0.5% rise in the December quarter. Annual wage growth eased from 2.2% to a record (18-year) low of 2%. I want to live in an economy where we worry about wage and inflation rises! Those were the days.
• The Philadelphia Fed Business conditions index fell from -1.6 to -1.8 in April, its eighth negative reading in nine months.
• The EgyptAir flight carrying 66 passengers and crew tragedy. IS is not just anti-West but anti-capitalism and I suspect they’re biting off more than they can chew.
• Fed Presidents Denis Lockhart and John Williams agree that two to three interest rate hikes this year “seem reasonable” and that action could be taken at the June 14-15 meeting. Why do these two have to talk? Can someone shut them up and let the market learn about possible Fed actions when they happen? Why add to potential negativity when there are too many pessimists out there already?
• This slightly disappointing Chinese data: retail sales rose 10.1% in the year to April (forecast 10.5%) with production up by 6% (forecast 6.5%) and investment rose by 10.5% in the four months to April on a year ago (forecast 10.9%). However, I dislike even more those who think China always has to shoot the lights out. These data misses were small and I was glad our stock market rose above it this week.

Go Australia!

Top Stocks – how they fared

[table “178” not found /]

The week in review

(click the blue text to read more)

• This week I explained why a focus on the right kind of assets for your portfolio can help it weather all types of market conditions.
• Paul Rickard gave you a guide to choosing the best managed investment and revealed his favourite picks.
• Roger Montgomery said there still appears to be value and upside to the telecommunications retailer, Vita Group (VTG).
• Our Super Stock Selectors liked Origin, carsales.com and Macquarie Group.
• Charlie Aitken said the mid-cap industrial, Southern Cross Austereo (SXL), is undervalued and a sustainable 6% fully-franked dividend yield alone should support it at current prices.
• Tony Featherstone gave you three NZ companies listed on both sides of the Tasman to consider, including Trade Me Group (TME), Kathmandu Holdings (KMD) and Vista Group International (VGL).
• This week’s Professional Pick is from Equity Trustees’ Hugh Cameron, who likes Macquarie Atlas Roads (MQA) due to its strategic stakes in a couple of “the world’s best” infrastructure assets.
• Tony Negline shared his end of financial year tax tips for SMSFs (which really isn’t that far around the corner!)
• This week, the brokers put Myer and Aristocrat Leisure in the good books. In our second broker report, Cochlear and Mirvac were in the good books, while NAB was in the not-so-good books.

What moved the market

• The US Fed Minutes suggested a June rate hike is a possibility, giving Wall Street and the local market the jitters.
• The RBA’s minutes said their latest move to cut the cash rate was a close call, and the Aussie dollar jumped past $US73cents on the news. Flat jobs data also weighed on the Aussie market.
• And Apple shares got a leg up this week after investing extraordinaire Warren Buffett’s recent accumulation of a $1 billion stake in the business was revealed.

The week ahead

Australia

• Tuesday May 24 – Weekly consumer confidence
• Tuesday May 24 – Speech by Reserve Bank official
• Wednesday May 25 – Construction work done (March quarter)
• Thursday May 26 – Speech by Reserve Bank official
• Thursday May 26 – Business investment (March quarter)
• Friday May 27 – Reserve Bank panel participation

Overseas

• Monday May 23 – Markit “flash” manufacturing PMI
• Tuesday May 24 – US New home sales (April)
• Wednesday May 25 – US FHFA House price index
• Wednesday May 25 – US Markit services PMI
• Thursday May 26 – US Durable goods orders (April)
• Thursday May 26 – US Pending home sales
• Friday May 27 – US GDP (March quarter)

Calls of the week

• Charlie said mid-cap industrial stock, Southern Cross Austereo, is undervalued and investors should “tune in” for a 6%ff dividend yield.
• Fed officials said a rate hike is firmly on the agenda in June if economic conditions continue to improve.
• NRL turned NFL player turned Rugby Sevens hopeful, Jarryd Hayne, made the call to focus on qualifying for the Fiji Rugby Sevens Olympic squad after quitting the San Fran 49ers this week.
• Paul Rickard said the paint is starting to run dry for Dulux Group, and that growth will be harder to come by for the business due to subdued home renovation headwinds, so sell!

Food for thought

Risk comes from not knowing what you’re doing

– Warren Buffett, businessman and investor

Last week’s TV roundup

• Is FN Arena’s Rudi Filapek-Vandyck bearish or bullish on the market? To discuss this and more, he joins Super TV.
• Legendary fund manager from Investors Mutual, Anton Tagliaferro, tells us what stocks he likes right now.
• Does George Boubouras of Contango Asset Management believe our stock market can continue to ignore hairy global curve balls? Find out here.
• And my mate Paul Rickard answers your questions about the Government’s proposed super changes on Super TV.

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.

WorleyParsons, Independence Group, Select Harvests and Cover-More Group had their short positions increase by over 1 percentage point since last week.

Source: ASIC

My favourite charts

Consumers remain upbeat

The ANZ/Roy Morgan consumer confidence index jumped 1.1% to 115.1 in the week to May 15 and is up 0.4% on a year ago. Better still, current levels are above the average 112.1 since 2014. According to CommSec, all of this is great news seeing as though the election is in full swing and the Aussie dollar is weaker.

Domestic passenger numbers soar

58 million passengers flew domestic air routes in the year to March. As the chart shows, that’s a 1.2% increase over the year and the strongest growth in 22 months. That’s got to be good for airlines!

Top 5 most clicked on stories

• Paul Rickard: The best managed investment
• Peter Switzer: Forget the market’s ups and downs. Shoot for nirvana this way!
• Roger Montgomery: Hold the phone – a telecommunications retail stock
• Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say
• Charlie Aitken: Link administration: a super story

Recent Switzer Super Reports

• Monday, 16 May, 2016: Stay calm
• Thursday, 19 May, 2016: Radio star

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.