China’s stock market was up over 6% this week and it can only be based on a possible new stimulus package. That’s good. And overnight, big, important bellwether US companies, GE and Honeywell, reported well. Financials did OK this week, which surprised many for the current US reporting season. That’s also good.
We started the week at 5279.7 on the S&P/ASX 200 index and finished at 5268.2. That’s down 11.5 points and it has to be good that we didn’t give up much of the 4.5% gain of last week.
Remember, I told you during the week that October, forgive the market speak, is a “month of bottoms”. And so far, so good, on that front.
For the record, September 30 brought the most recent low of 4918.4. You’d have to go back to July 2013 to see that level, so that was a significant, big bottom!
Interestingly, if you look at the chart of the S&P/ASX 200 index, the stock market ripped after hanging around those lows. At the same time, the S&P 500 was heading higher too and some way along that rising market, the market started talking about the Fed getting closer to its first rate rise.
We’re in a “Fed will rise some time sooner or later” zone. The fact it’s looking more like later now is helping stocks head higher.
[1]The season is also good for stocks, with October historically positive for Wall Street despite the big crashes often happening in this month – 1929, 1987 and the GFC had a 1 November start in 2007 and doubled up on 15 September 15 2008. So October did bring a lot of stock price crashing but it wasn’t a starting month.
In fact, we shouldn’t be too cocky because the 1929 crash was October 28 and in 1987, it was October 19. That said, the month has a good history of setting us up for an end-of-year rally.
Only a damn black swan event could ruin this rosy outlook and I’ll look at that unwanted possibility on Monday.
On the local front and the PM’s magic seems to keep working with the media. Though they’re preoccupied with his Cayman Islands investments, the media is largely giving him a fair go – for a millionaire! – and it looks like his luck or magic seems to be creating what I’ve dubbed the “Turnbull turn on” effect! We’ve seen a pretty good week on the economics front, as I’ll show below. If we can see a stock market rally add to this improving economic outlook, then the turn on factor might crank up a gear!
Certainly at this stage, we’re seeing rising global stock markets plus better local economic readings, pretty good earnings results in the US reporting season, some positive AGM-related news locally and some better news for commodity prices. This all adds up to a better-than-expected outcome than you might have thought when we hit 4918.4 only 17 days ago!
Next week is a huge one for the US reporting season and it should be the big watch for the week, along with China’s GDP number on Monday morning.
A bad number there might be good news for stocks, as it should lead to “more stimulus is coming” speculation. I’d rather see my Chinese buddies pull a rabbit out of their hat and provide better-than-expected numbers. Good news might still be good news, even in a world recently where bad news has been good news, taking a line through the Fed’s delayed rate rise on global economic concerns, which has helped stocks.
What I liked
- The NAB business confidence figure spiking from +0.8 to + 5 and the business conditions number remained around the 9-level, which was the second month in a row – a nice sign.
- The Westpac consumer sentiment spiked 4.2% to 97.8, with male confidence up 3.3% but female confidence rose 6.1%, which is a big jump – thank you Malcolm!
- Unemployment remained steady at 6.2% and while employment fell 5,100 over the year, 230,100 jobs have been created, which is nearly a four year high. Hours worked were are up 2.5% over the year and this is the fastest pace of growth in four years.
- New car sales rose by 5.5% in September after a 1.7% fall in August. In rolling annual terms, a total of 1,143,109 new vehicles were sold over the year to September – a record high. (CommSec)
- This from the European reporting season that shares in Europe rebounded on Thursday, underpinned by positive earnings results. The FTSEurofirst 300 index rose by 1.4%, with the UK FTSE up by 1.2%, while the German Dax also lifted by 1.5%. Europe is often picked as the place to invest, so good earnings is a good omen.
What I didn’t like
- US economic data is still OK but it’s softening a tad, with the Fed’s Beige book revealing more uneven growth. Six Fed districts described growth as modest and three as moderate. In addition, Boston and Richmond reported activity at an unspecified pace, while Kansas City saw a slight decline. However, labour markets have been described as having further tightened, which is better news than the growth reports from the districts.
- Chinese inflation news did not raise confidence levels. Excluding food, consumer prices there are up just 1% over the year. And producer prices continue to slide, at a near 6% annual rate. The lower cost of energy (especially oil) is providing a boost to Chinese producers and consumers. We could be too worried about low inflation as it’s not all caused by low demand, with a lot coming from this lower cost world we live in. The Internet, globalisation, disrupters, weaker unions and low energy prices is changing the old notion of what drives inflation.
- This warning from the RBA yesterday: “Risks to the Australian banking system have increased somewhat over the past six months from banks’ lending to other sectors. The outlook for some commercial property markets has deteriorated further, and banks will need to be especially vigilant in their commercial property risk appetite and the maintenance of sound lending practices in the period ahead.”
- The Oz dollar this morning is 72.75 US cents and I don’t want to see it go to 73 US cents and head higher. This is a response to the greenback’s fall on the hesitancy of the Fed to raise rates. When they do give it a go, our dollar will head back to the high 60s, I suspect.
What I loved this week
Freelancer’s Matt Barrie rang me to see if he could come on my show this week. The day he came on, his share price rose over 12%. Earlier in the week, Domino’s CEO Don Meij rang to say he’d like to come on the show and his share price rose over 5%!
Could this be Switzer magic?!
Top stocks – how they fared
[table “121” not found /]The week in review
(click the blue text to read more)
- I told you why [2] I can’t see anything looming that will force our stock market down too low in the coming weeks, and why there’s a case for stocks trending higher into early 2016.
- Paul Rickard explored an IPO [3] of super fund administration and share registry provider Link. He says it’s a business that is priced close to perfection and that there is better value to be found in other stocks like Computershare.
- Roger Montgomery explained why Resmed’s launch of the new AirSense platform [4] has put it ahead of other competitors in this space.
- Our Super Stock Selectors placed ANZ and REA Group [5] on their ‘likes’ list.
- Tony Featherstone said Costa Group Holdings (CGC), Argo Global Listed Infrastructure (ALI) and MYOB Group (MYO) are three floats [6] worth keeping an eye on.
- The brokers upgraded [7] Bank of Queensland and Japara Healthcare and in our second broker report [8], Oceanagold and Suncorp got the thumbs up.
- In Short n’ Sweet [9], Penny Pryor explained what qualities a good CEO should have.
- And using two court cases [10] as examples, Tony Negline explained the fines you could face if you play with your superannuation as a petty cash box.
What moved the market
- Wall Street received a boost after a general run of soft economic data raised expectations that the Fed will delay hiking interest rates until next year.
- China’s weaker than expected trade data – exports fell 3.7% in September from a year earlier, while imports slumped 20.4% – unsettled the local market.
- Westpac’s decision to raise home loan interest rates by 0.20% helped support the banks – and put back on the agenda the prospect of an RBA cut to the cash rate.
The week ahead
Australia
- Tuesday October 20 – Reserve Bank Board minutes
- Tuesday October 20 – Business Sales Index (September)
- Tuesday October 20 – Imports of goods (September)
- Thursday October 22 – Detailed jobs data (October)
- Thursday October 22 – Speech by RBA official
Overseas
- Monday October 19 – Chinese economic data
- Monday October 19 – US NAHB index (October)
- Tuesday October 20 – US Housing starts (September)
- Thursday October 22 – US Kansas City Fed survey (October)
- Thursday October 22 – US Monthly home prices (August)
- Thursday October 22 – US Existing home sales (September)
- Thursday October 22 – US Leading index (September)
- Friday October 23 – “Flash” manufacturing surveys
Calls of the week
(click the blue text to read more)
- In this week’s Switzer Super Report, Charlie Aitken said Macquarie Group is a large cap Australian winner that is on the way to $100 [11].
- Domino’s Pizza will become more French than ever after announcing it will buy 89 Pizza Sprint stores in France [12] for €35 million. Bon appétit!
- Westpac followed the other major banks with a $3.5 billion capital raising through a share entitlement offer, but the call to hike its standard variable mortgage rates by 0.20% shocked the market. Read Paul Rickard’s analysis here [13].
- And London’s Mayor, Boris Johnson, made the call to go “all in” during a game of street rugby with a group of Tokyo children, taking out 10-year old Toki Sekiguchi during the game!
[14]Source: Issei Kato / Reuters
Food for thought
There’s a way to do it better – find it
Thomas A. Edison – American inventor
Last week’s TV roundup
- Chartist Gary Stone from Share Wealth Systems tells us what’s happening with the market and also shares his analysis [15] of some big blue chip stocks.
- CEO of Macquarie Telecom, David Tudehope, joins the show to talk about why his company has resisted the urge to merge [16].
- CEO of Domino’s Pizza, Don Meij, explains the company’s new French acquisition [17].
- David Buckland of Montgomery Investment Management tells us why Australian investors need to start thinking outside the square [18].
- In this Super Session we give you reasons why shares could go higher [19] and some curve balls to watch out for.
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 Monadelphous Group, with a 0.77 percentage point increase in the proportion of its shares sold short to 15.12%. Myer went the other way, with a decrease of 1.43%, leaving 12.96% of its shares sold short.
[20]Source: ASIC
My favourite charts
Dollar in prime territory
[21]The Aussie dollar is trading in the territory that supported our economy during the worst of the GFC. Go you good thing!
Turnbull turn on!
[22]The economy could be getting its mojo back through some Malcolm Turnbull stimulus, with the monthly Westpac consumer sentiment index on its way to positive territory after rising 4.2% to 97.8.
Top 5 most clicked on stories
- Charlie Aitken – Finding the next golden health stock [23]
- Peter Switzer – Trust the rally – here’s what you should know [2]
- Charlie Aitken – Macquarie Group – the pathway towards $100 [11]
- Tony Featherstone – 3 floats worth keeping an eye on [6]
- Paul Rickard – IPO watch – Link Administration Holding [3]
Recent Switzer Super Reports
- Thursday, 15 October, 2015: A change of plan [24]
- Monday, 12 October, 2015: Trust the force [25]
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.