Well, the Yanks are showing a greater level of positive expectations in Donald Trump and his upcoming meeting with China’s President, Xi Jinping, with the Dow only just negative, while the S&P500 and the Nasdaq are in the green with about three hours left to trade. (Yep, that’s my ‘sleep-in’ I ‘enjoy’ for my beloved subscribers!)
And given these relatively positive readings on the US stock market ahead of the dinner date of Donald and Xi, which should have a big bearing on what stocks do going into year’s end, the big question I have to answer today is: “What was the deal with that 90-plus fall in the stock market on Friday?”
The big drivers of our market seem content to ignore the good economic revelations about our economy, with the Thursday standout being, as CommSec put it: “Biggest upgrade to investment in 19 years!” So, when I put that market sell off up alongside that positive economic indicator, which tells you how business is thinking, I have to blame our never-ending torture by the Royal Commission of financial businesses, the threat of what the Government and Labor will promise to do before the election and Bill Shorten’s threat to retirees receiving tax refunds, as well as his negative gearing proposals.
These all work against a rising stock market. So does the Government’s crusade against energy companies and aged care providers. Yep, our stock market is buffeted by lots of homegrown headwinds on top of ‘Hurricane’ Donald and his trade war, Brexit, EU/Italy challenges and a China slowdown, which clearly has a knock on effect for us.
All the above screams: “Let’s make a deal, Donald!” However, Donald is the least predictable politician of the modern era, so we’ll wait this weekend out. I’m hoping I can use the headline: “Don’t cry for me, Argentina” on Monday because we get some progress towards ending this trade war.
The above looks at the ongoing threats to our stock market heading higher but what was the Friday story where the S&P/ASX 200 index dropped a whopping 91.2 points (or 1.58%) to 5667.2? This meant in a month that usually starts a nice run right into January, the index lost 163 points (or 2.8%) and over the December quarter so far the losses are 8.7%!
The AFR concurred with my view on the role of Donald and his trade war, in trying to explain the fate of our stocks, by sheeting a lot of it back to Donald. They sourced the views of Saxo Capital Markets strategist, Eleanor Creagh, who said: “I think the tone for trading heading into December will be heavily reliant on the outcome of this weekend’s much anticipated dinner. The most optimistic outcome we are hoping for is a tariff ceasefire and commitment to continue negotiations, but even this could be misplaced optimism.”
Not helping yesterday and for that matter over the month, has been the fall in the oil price that continued yesterday after a couple of days this week where the oil bulls had a nice little run. Oil and other energy stocks had a bad day at the office yesterday.
Tech stocks did OK this week and lately they have followed the lead from the US and the positive tidings about progress on the trade standoff has seen the likes of Amazon head higher this week.
Amazon this week
Source: finance.yahoo.com
Now to explain our tough time for stocks, check out Westpac’s tough Royal Commission year.
Westpac year-to-date
Source: finance.yahoo.com
And what makes me curtail my usual positivity is the wait we have to endure until February, when the Hayne recommendations are revealed. Then we wait until the Government and Bill outline their punishments. And then there’ll be an election, followed by a likely Labor win, so you can see why I’m sweating on Donald to say to Xi: “Let’s make a deal.”
Our market is being trumped by local and external factors and the biggest hope for a relief rally will come from overseas.
What I liked
- Craig James’s take on slower credit numbers this week: “There is no credit crunch. Banks are still lending and any shortfall is being picked up by non-bank lenders.” (Most types of lending rose, albeit it at very slow rates but business borrowing rose at the fastest rate in 22 months and remember the monetary authorities engineered this borrowing slowdown to hose down the hot housing market.)
- The ANZ-Roy Morgan consumer confidence rating rose by 0.7% to 118.6 in the past week. The index is well above the average of 114.2 held since 2014, and above the longer-term average of 113 held since 1990.
- The fourth estimate of investment in 2018/19 is $114.099 billion and is 4.4% higher than the fourth estimate for 2017/18. There was an 11.3% upgrade in investment between the third and fourth estimates – the strongest upgrade in 19 years.
- Services sector investment hit a record high of $73.6 billion for the year to September.
- Construction work done fell by 2.8% in the September quarter – only the second decline in the past two years. However, in the year to September, construction work done was at record highs in NSW, Victoria and South Australia.
- According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 5.3 cents a litre last week to 137.8 cents a litre. Petrol has fallen 22.7 cents over the past four weeks – the biggest equivalent decline in a decade. Capital city motorists are saving as much as $69 on a monthly basis on filling up the car with unleaded petrol, equating to a quarter per cent rate cut on a $450,000 mortgage over a 25-year term.
- The Dow Jones up by 618 points (or 2.5%) on Wednesday on positive trade war talk.
- The Fed boss, Jerome Powell’s comments on interest rates where he implied a fast increase wasn’t likely and that the stock market didn’t look too expensive.
- The US economy grew at a 3.5% annual rate in the September quarter, in line with forecasts.
- US personal income rose by 0.5% in October (forecast +0.4%), with spending up 0.6% (forecast +0.4%).
- USA Today tells us that: “Retailers’ push to kick off the season with a bang worked out to their advantage. Adobe says some $7.9 billion was spent online for Cyber Monday, making it the biggest online sales day ever. All told, some $24.2 billion was spent online over the five day sales holiday, beginning on Thanksgiving.”
- The Italian share market lifted 2.8% on optimism about a budget deal being secured with the European Commission.
- British banks rose modestly after all seven lenders passed Bank of England stress tests.
What I didn’t like
- The dollar at 73.40 US cents this week!
- US consumer confidence fell from 137.9 to 135.7 in November (forecast 135.9).
- Germany’s Wirtschaftswoche magazine reported that the US could announce new taxes on imported cars at the G20 meeting.
- China’s official manufacturing purchasing managers’ index fell from 50.2 to 50 in November (forecast 50.2). And the services gauge fell from 53.9 to 53.4 (survey: 53.8 points) in November. A level above 50 denotes expansion in activity. Both are still expanding but the rate is slowing.
- US housing numbers remain pretty weak, though the Fed’s more dovish view on rates this week could help the sector.
That damn dollar
The dollar refusing to slip below 70 US cents is another headwind for our stock market. I’m not going overseas at Christmas so I’m not conflicted on the value of the currency but what annoys me is that the dollar is saying the economy is stronger than many experts predicted but the stock market isn’t reflecting it. And by the way, the higher dollar explains some of the November quarter fall in the stocks because a lot of stocks see their share price spike as the dollar dips. Also, some foreign buyers would be waiting to see a lower dollar before rebuying stocks they might have sold over the quarter.
This picture reinforces my gripe.
Source: finance.yahoo.com
Finally, thanks to all of you who came to the Switzer Income Conference. The AFR’s Chris Joye, whose Smarter Money Bond funds were on show, said the audience/conference was the best he’s talked to! So, thanks for being you.
The Week in Review:
- Headlines can add fuel to stock market fire in this new age media world, so here’s my take [1] on what headlines to digest and what to toss.
- Primary, our second biggest provider of pathology services, has had a horror run and has been a dog for investors but is it on the recovery trail? Read Paul Rickard’s [2] article to find out.
- WiseTech Global, Afterpay Touch Group, Altium, Appen and Xero are Australia’s version of the fabled US FAANG stocks. Tony Featherstone [3] looks at whether it is time to buy any of these WAAAX stocks.
- James Dunn [4] has done the digging for you and unearthed five mining situations across different commodities that appear to be good value at present.
- Horizontal equity, one of the principles of our tax system, is where those on the same/similar incomes/wealth contribute about the same. No franking credit refunds will have a huge impact on members of SMSFs but not necessarily all super funds. Graeme Colley [5] asks: how equitable is that?
- In the first Buy, Hold, Sell – what the brokers say [6] of the week, our share market was solidly supported by analysts issuing a tsunami of recommendation upgrades, and in the second edition [7], upgrades outnumbered downgrades 15 to 8.
- We had two Professional’s Picks for you this week, with Peter Wilmshurst, Portfolio Manager at Templeton Global Growth Fund Ltd, choosing Siemens [8] and Elio D’Amato, Executive Director at Lincoln Indicators, selecting Fisher & Paykel Healthcare Corp Ltd. [9]
- Our Hot Stocks [10] for the week were Ainsworth Gaming Technology (AGI), Technology One (TNE), Nufarm (NUF) and Woodside (WPL).
- And in Questions of the Week [11], we answered readers’ queries about PERLS XI -v- Westpac Capital Notes 6, investing in index ETFs and the BHP buyback.
Top Stocks – how they fared:
What moved the market?
- Fed chairman Jerome Powell indicated US interest rates are currently ‘just below’ neutral.
- Hopes of a resolution to the trade war between China and the US ahead of the G20 summit in Argentina.
- The oil price has continued to fall, touching US$50 a barrel.
Calls of the week:
- Primary Health Care (PRY) is a “patient buy” according to Paul Rickard [2].
- Tony Featherstone [3] said that, except for Xero, he is avoiding the WAAAX stocks.
The Week Ahead:
Australia
Monday December 3 – CoreLogic Home Value index (November)
Monday December 3 – Manufacturing purchasing managers surveys
Monday December 3 – Business indicators (September quarter)
Monday December 3 – Building approvals (October)
Tuesday December 4 – Reserve Bank Board meeting
Tuesday December 4 – Balance of Payments (September quarter)
Tuesday December 4 – Government finance (September quarter)
Wednesday December 5 – Economic growth (September quarter)
Wednesday December 5 – New vehicle sales (November)
Thursday December 6 – International trade (October)
Thursday December 6 – Retail trade (October)
Overseas
Monday December 3 – US ISM Manufacturing (November)
Wednesday December 5 – US Federal Reserve chair testimony
Wednesday December 5 – US ADP employment (November)
Wednesday December 5 – US ISM services (November)
Wednesday December 5 – US Beige book
Thursday December 6 – US International trade (October)
Thursday December 6 – OPEC oil ministers meeting
Friday December 7 – US Employment (November)
Switzer Stumper
True or false: Pablo Escobar would write off US$2.1 billion each year due to money being lost, damaged or eaten by rats.
The answers to last week’s question were: Algeria, Angola and Central African Republic.
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.
Chart of the week:
The chart from CommSec below shows the ‘Baton Pass’ in capital expenditure shifting from mining to non-mining:
Source: ABS, CommSec
Top 5 most clicked:
- The headlines all share market investors should know or throw! [1] – Peter Switzer
- 5 good value miners for 2019 [4] – James Dunn
- Buy, Hold, Sell – What the Brokers Say [6] – Rudi Filapek-Vandyck
- Is it time to buy the WAAAX stocks? [3] – Tony Featherstone
- BHP’s buyback a “no brainer” for some shareholders [12] – Paul Rickard
Recent Switzer Reports:
Monday 26 November: Fuel to the fire… [13]
Thursday 29 November: Many stocks [14]
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.