[table “291” not found /]
In the absence of anything very positive (say like President Trump looking like he could get his tax plan to Congress), or anything really negative (such as surprisingly bad economic stories or a too bolshie Fed committed to too fast interest rate rises), we’re in the hands of short-term moneymakers, as Friday’s profit-taking showed.
The fact the banks were sold off proves my point. Westpac, for example, was up Monday, up Tuesday, up Wednesday, slightly down Thursday and then kaplonk, down 1.69% on Friday. It lost 19 cents for the week!
So how come? I guess it’s pre-reporting season ‘fun and games’. However, this is what smart short-term traders do. And it’s an easy game to play with quality stocks. After all, even if you get it wrong for a short time, you are holding quality assets.
I’ve noticed with our fund, SWTZ, every time we go under $2.50, people pile in. And when the market goes negative, with our price over $2.50, a sell off happens before another buy in.
If someone gets this one wrong in the short term, they still hold an asset that pays a good dividend, especially in the September quarter, which is the best one for big dividends. This is followed by the second best quarter for dividends over the three months to December.
Until Thursday, the market was up close to 2% but the S&P/ASX 200 Index eventually ended down 0.4% for the week at 5702.8.
If anyone thought our Friday sell off was anticipating bad news out of Wall Street, that was not borne out by US stock action over night. Ahead of the close, the Dow is up slightly, while the other indexes are just negative, so there’s no surprise horror stories from Trumpland.
I can’t wait for reporting season, which kicks off next week, because I want the substance of real earnings stories to drive the market. However we’ll have to wait for week two for it to get really serious.
A big gain of around 20% for overall earnings is being tipped by the likes of Citi, while AMP’s Shane Oliver is looking for 18%-19%. However, resource stock bottom lines could be up 130%, thanks to the huge turnaround in commodity prices on top of the cost-cutting that miners have been committed to since the mining investment boom petered out. Considering this big surge in profits for resource companies, non-resource companies are only expected to see their profits rise by around 5%.
There was talk about concerns over a bad report from Amazon but that should be cheered, as this business-killer is more a threat to the stock market than a savior.
If there was one negative that could explain the fall on the stock market, it would have to be the Oz dollar over 80 US cents, which hits the likes of Macquarie, CSL and other exporters. It’s no good for economic growth and, if it persists, it could easily damage the outlook statements over reporting season, meaning the profit result might be better than expected but the future could be portrayed as worse than expected!
That’s not ideal.
The good story was the resilience of resource stocks, with BHP up 3.4% and Rio up 1.9%, while the very sensitive Fortescue wacked on 7% this week!
I can’t wait to reporting season. I can’t cope with this going nowhere stock market and having to watch short-term profit-makers play with stocks.
I guess for the index-player there’s an opportunity to buy in on Monday or sit and wait for a sell off, depending on what your view is about how reporting season will play out.
I’m hoping we don’t see another 5760 day when the market threatens to break through that support level and stay below it. We’ve beaten it six times in recent months and I’d love to say goodbye to it for a long, long time.
What I liked
- Amazon, the world’s largest online retailer, posted second-quarter revenue of $US38 billion, up 25% from a year earlier. Yet the company posted a 77% drop in quarterly income, and even said it could lose up to $US400 million in operating profit during the current quarter.
- The oil price at eight-week highs.
- The US VIX or fear index has recorded nine days in a row under 10. That’s never happened before. A low VIX says optimism on stocks makes sense so you can see why I like this number.
- Fed Chair Janet Yellen is reported to be in the running for reappointment as Fed Chair.
- The IMF held stable its global growth forecasts for 2017 at 3.5% and 2018 at 3.6%.
- US economic data this week was good – the Markit manufacturing conditions index was a good read, a rise in consumer confidence, continuing gains in home prices, a moderate rising trend in capital goods orders, a smaller goods trade deficit and ultra low jobless claims.
- Of the 270 S&P 500 companies to have reported so far, 77% have beaten earnings expectations and 74% have beaten on revenue. Reporting season could be better than expected!
- In Europe, the business conditions PMIs remain strong as do the German IFO and the French INSEE business conditions indexes.
- The weekly ANZ/Roy Morgan consumer confidence rating rose by 2.3% in the latest week to a 5-month high, after easing 0.4% in the previous week.
- One positive on the high dollar from CommSec’s Craig James: “The stronger Australian dollar will help to absorb any lift in global oil prices in coming months. Looking forward it is unlikely that prices will shift significantly over the medium term.”
What I didn’t like
- The dollar’s dance above 80 US cents! This is Shane Oliver’s take on the currency: “The rise in the $A is a big problem for the Australian economy and is likely contributing to the continuing underperformance of the Australian share market compared to global shares.”
- The inflation number, with the annual rate of inflation falling from 2.1% to 1.9% – both headline and underlying measures running below the RBA’s 2-3% target
- The ratio of export prices to import prices (terms of trade) fell by around 6% in the June quarter but it was from 4½-year highs. And export prices for meat and meat products rose 7.2% in the quarter to record highs!
Another like!
Did I tell you that I’m looking forward to reporting season? I hope it’s been worth the wait. Good luck to all, except short sellers!
The week in review
- With reporting season around the corner, can the overall story power the market higher? I revealed what the experts are tipping for some of the most important stocks we own [1].
- Looking to expand global exposure in your portfolio? Paul Rickard [2] provided an overview of the European markets to watch and the ETFs to access them.
- There’s a lot more to the Australian financial services industry than the big four banks. James Dunn [3] shared five companies to watch.
- Have valuations of the telcos become attractive since the sell off? Roger Montgomery [4] outlined his views on companies in the sector.
- Tony Featherstone [5] shared two companies that stand out in the fast-growing pet industry.
- Charlie Aitken explained why he believes a “great rotation” has commenced in markets [6].
- Brokers upgraded Sydney Airport this week but downgraded Perpetual [7]. In our second broker report, Bendigo and Adelaide Bank [8] was upgraded but Santos was out of favour.
- Sebastian Evans explained why he likes Big River Industries [9].
- And our stock pickers [10] placed an oil and gas company in their good books. But a soft drink maker that lost its fizz was relegated to the dislikes list.
Top stocks – how they fared
What moved the market?
- Strong rises in the oil and commodities markets helped propel energy and mining stocks. OPEC producers Saudi Arabia, Kuwait and the UAE said they would trim crude exports further to support prices.
- Wall Street rose on better-than-expected quarterly earnings reports.
- The Aussie dollar punched through 80 US cents on the back of higher commodity prices and greenback weakness after the US Federal Reserve meeting. The US Fed statement was interpreted as more ‘dovish’ on inflation, reducing market expectations for another rate hike.
Calls of the week
- Woolies made the call to ditch three varieties of Coca-Cola Amatil’s Mount Franklin line. No surprise that CCL shares lost their fizz on the news!
- Super Retail Group will convert all of its Amart Sports stores into Rebel stores by October 31, increasing Rebel’s “national footprint” to almost 160 stores.
- Just to add to Trump’s controversial Twitter stream, The Donald said the Government would ban transgender troops from the US military.
- And KKR’s Henry McVey suggested that China has already had its “hard landing”. “China has already has its crash, per se”, McVey noted on Bloomberg TV. Watch the interview here [11].
The week ahead
Australia
- Monday July 31 – Financial Aggregates (June)
- Tuesday August 1 – CoreLogic Home Value index (July)
- Tuesday August 1 – Reserve Bank Board meeting
- Wednesday August 2 – Building approvals (June)
- Thursday August 3 – International trade (June)
- Friday August 4 – Retail trade (June)
- Friday August 4 – Statement on Monetary Policy
Overseas
- Monday July 31 – US Pending home sales (June)
- Monday July 31 – China Purchasing managers (July)
- Tuesday August 1 – US Personal income (June)
- Tuesday August 1 – US ISM manufacturing (July)
- Tuesday August 1 – US New vehicle sales (July)
- Wednesday August 2 – US ADP Employment (July)
- Thursday August 3 – US ISM services (July)
- Friday August 4 – US Non-farm payrolls (July)
- Friday August 4 – US International trade (June)
Food for thought
Only when the tide goes out do you discover who’s been swimming naked.
– Warren Buffett
Last week’s TV roundup
- To share his views on the stock market, Telstra and more, Charlie Aitken [12] from Aitken Investment Management joins the show.
- FNArena’s Rudi Filapek-Vandyck [13] reveals three companies he thinks could do well this reporting season.
- Low inflation has unsettled the RBA and the dollar broke through the 80 US cent level, so to share his views on the economy, Shane Oliver [14] from AMP Capital joins Super TV.
- And should we be worried about a house price collapse in Sydney and Melbourne? CoreLogic’s Tim Lawless [15] shares his thoughts.
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 Western Areas, with its short position increasing 1.42 percentage points to 18.03%.
Source: ASIC
Charts of the week
Cash is no longer king
More and more people are ditching their wad of cash and opting for the “tap and go” method, according to the recent Reserve Bank Payments survey. It’s the first time cards have taken over cash as the most common transaction method, with 52% of transactions made with cards and 37% made with cash. You can see our love affair with cash dwindling over the years in the chart above.
Keep calm – the market carries on!
Shane Oliver of AMP Capital reminded us that while there’s always something to worry about, most of it is just noise and the market keeps climbing. In fact, he pointed out that since 1900, Aussie shares have returned 11.8% per annum. Here’s a chart of the All Ords price index climbing the wall of worry since before you were born!
Top 5 most clicked stories
- Peter Switzer: What analysts tip on Telstra, the banks and the big miners! [1]
- Charlie Aitken: The great rotation has commenced [16]
- James Dunn: 5 financial services stocks to watch [3]
- Roger Montgomery: Hold the phone, how are the telcos? [4]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [7]
Recent Switzer Super Reports
- Thursday 27 July 2017: Bond yields and cash rates [17]
- Monday 24 July 2017: Reporting season starts soon [18]
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.