Source: AMP Capital

For those of you who hate graphs, here’s the summary: “So far, 51% of companies have reported, with 46% exceeding expectations, which is around the norm of 45%. 68% have seen their earnings rise on a year ago, 56% have seen their share price outperform the market the day results were released and 92% have either maintained or increased their dividends. While overall profits look to have fallen 8% in 2015-16 (thanks to the slump in resource profits), they are on track for a return to growth in 2016-17, as the slump in resources profits reverses and non-resource stocks see growth.”

This is another explanation why our stock market is not giving into what looks like an overdue pullback. I’ve said in the past that I’d be a buyer of any sell off because I think stocks will end up this year. (As I showed last Monday, the last seven months of a US election year has been good for stocks.)

In case you missed it though, the health sector had a rough week, down 3.2%, as CSL and Primary Healthcare failed to live up to their elevated share prices and P/Es. But against that, material stocks did well, thanks to BHP’s OK job to turn the worst loss in its history into a story of hope and glory! And then there was the oil price.

As you can see, currently there’s no big reason to sell or a great one to buy, given stocks have been trending up since mid-February. We’re up 17.3% since the low of 4706.7, so I think we need something big to take us out of the current range we’re in. I hope it will be a revelation that takes us up but as I say, a pullback can’t be ruled out.

Part of the market doldrums we’re seeing now is linked to the pondering when the US Federal Reserve will raise rates. The annual economic policy symposium in Jackson Hole, Wyoming, is on next week (from Thursday to Saturday) and market-moving stuff can come out of this little get together of heavyweights on monetary policy. Janet Yellen is speaking and every word will be dissected for rate rise timing hints.

Overnight, US markets were down a little and there was a lot of focus on what San Francisco Fed President John Williams said that indicated support for a rate hike in the near future. “In the context of a strong domestic economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later,” he said. (CNBC)

The Fed will be big news next week.

What I liked

• The fall in unemployment from 5.8% to 5.7% to a three-year low! Employment rose by 26,200 in July after rising by 10,800 people in June (previously reported as a rise in jobs of 7,900). Sure, full-time jobs fell by 45,400, while part-time jobs rose by 71,600 but economists only expected a 10,000 increase in jobs. And anyway, I don’t trust those part-time and full-time numbers on any one month, as they jump around big time.
• “After an awful five years, commodity prices are stabilising, which will likely provide the broader Aussie economy with a reprieve for an uncertain length of time.” (Suncorp head of treasury research, Darryl Conroy, to the SMH yesterday.)
• This from Shane Oliver: “After a 1-2 month correction or consolidation, we anticipate shares to trend higher over the next 12 months, helped by okay valuations, very easy global monetary conditions and continuing moderate global economic growth.”
• This from the RBA’s minutes: “While GDP growth had been stronger than expected in the March quarter, reflecting unanticipated strength in resource export volumes, it was expected to have been more modest in the June quarter. Economic growth was expected to pick up, to be above estimates of potential [growth] by mid 2017.”
• The ANZ/Roy Morgan consumer confidence rating rose by 2% to 117.6 in the week to August 14. Confidence is up 3.9% over the year and well above the average of 112.4 since 2014.
• The US Conference Board Leading Indicators index rose 0.4% in July. US jobless claims fell by 4,000 to 262,000 last week, mildly better than expectations. The Philadelphia Fed Business Conditions index gained 5 points to a reading of 2.0 in August.
• The National Association of Home Builders’ housing market index rose 2 points to 60 in August. The NAHB noted “new construction and new home sales are on the rise in most areas of the country, and this is helping to boost builder sentiment”. This sounds like a decent US economy indicator, doesn’t it?
• The thought of the 87 local companies reporting next week and the run of economic data worldwide, which should make a lot of my views clearer about the future.

What I didn’t like

• The Oz dollar flirting with 77 US cents, which makes our economic comeback harder to sustain. And this from Oliver: “The Fed continuing to delay rate hikes, a break of April’s high of $US0.78 and a push up to $US0.80 is likely for the $A. Beyond the short term though, we see the longer term downtrend in the $A.”
• The wage price index rose by 0.5% in the June quarter, after a similar rise in the March quarter. Annual wage growth held at a record (18-year) low of 2.1% but it’s not all bad news, with the gap between annual wage growth and inflation being 1.1 percentage points, which is the biggest margin in 3½-years (December 2012).
• That pest, Moody’s, putting our banks on negative watch. At least the Commonwealth Government’s rating was left as stable – Malcolm didn’t need more bad news.
• The whingers who have become Olympic experts after a couple of days in an armchair and in front of a TV! The results are what they are and every athlete who didn’t win was beaten by someone who was the best in the world on that day! Like most Aussies, I’m addicted to gold (medals, that is) but sport makes no promises about results, though it can teach the participants what a good and bad sport looks like!

Top Stocks – how they fared

The week in review

• I explained why you should keep the faith in stocks!
• My mate Paul Rickard told you all about the Telstra buyback and whether you should accept.
• Our Super Stock Selectors liked James Hardie but ANZ was out of favour.
• Tony Featherstone tipped three car-related stocks that offer value despite threats to the industry.
• Charlie Aitken said Aussie small- and mid-caps could continue to outperform the top 20 stocks.
• Gary Stone shared his technical analysis of some of Australia’s biggest companies.
• This week, the brokers downgraded Suncorp and Westpac.  In our second broker report, Bluescope and BHP were in the good books but Ansell and QBE were in the not-so-good books.
• Simon Brown of Tribecca Investment Partners said insurance broking network, Steadfast Group, has additional scope for growth.
• ST Wong of Prime Value Asset Management said Reliance Worldwide has significant opportunities to increase its share of the market.

What moved the market?

• Some less-than-inspiring earnings reports from the likes of CSL, QBE and AMP weighed on the local market.
• A surge in the oil price helped lift the US market and local resource stocks.
• Global markets rose after US Fed policymakers appeared divided on when to raise interest rates.
• And the Aussie materials sector managed to hold ground on the back of BHP Billiton’s better-than-expected underlying earnings.

Calls of the week

• Charlie Aitken said he’s bullish on small and mid-cap stocks and backed a major provider of cloud based software for SMSF administration – Class (CL1).
• Tony Featherstone named three car-related stocks – Bapcor, Carsales.com and AMA Group – that could continue to cruise higher!
• I made the call to report on some good news made by the RBA in my Daily blog (someone has to do it!) They expect economic growth to be in the 2.5-3% band until mid-2017 and aren’t spooked about house prices!
• And AMP’s Shane Oliver and CommSec’s Craig James have tipped a November rate cut by the RBA.

The week ahead

Australia

• Monday August 22 – CBA Business Sales Index (July)
• Tuesday August 23 – Weekly consumer confidence
• Wednesday August 24 – Construction work done (June quarter)
• Thursday August 25 – Detailed labour market (July)

Overseas

• Monday August 22 – US Chicago Fed National Activity (July)
• Tuesday August 23 – Markit “flash” manufacturing PMI (August)
• Tuesday August 23 – US New home sales (July)
• Wednesday August 24 – US FHFA House price index (June)
• Wednesday August 24 – US Existing home sales (July)
• Thursday August 25 – US Durable goods orders (July)
• Thursday August 25 – US Markit service PMI (August)
• Friday August 26 – US GDP (June quarter)
• Friday August 26 – University of Michigan Sentiment (August)

Food for thought

People do not decide to become extraordinary. They decide to accomplish extraordinary things.

– Edmund Hillary

Last week’s TV roundup

• Brambles CEO Tom Gorman and Brambles chairman Stephen Johns discuss the company’s solid performance and plans for the future.
• Online travel business Webjet has soared above analyst expectations. To explain the factors driving the company higher, MD John Guscic joins the show.
• CEO of Baby Bunting, Matt Spencer, joins the show to talk about the company’s future plans for growth.
  And CEO of QBE, John Neal, joins Super TV to discuss the group’s annual results.

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 Downer EDI with a 0.41 percentage point increase in the amount of its shares sold short to 7.50%. WorleyParsons followed, with its short position increasing by 0.34 percentage points to 14%.