Switzer on Saturday

No sell off yet, so let’s enjoy it while it lasts

Founder and Publisher of the Switzer Report
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In my caper I don’t like being wrong and this week the market defied my 10 reasons for a sell off. And despite Coronavirus infections in the USA spiking to levels that are worrying the country’s top virus-killing medico, Anthony Fauci, Wall Street continues to buy stocks!

Bloomberg reported this week that a Goldman Sach’s Health conference saw executives come away believing that one or two vaccines are likely to go public before the November 3 US election. Reports will hardly surprise you to learn that the White House is pressuring the FDA to fast-track processes to ensure a vaccine shows up much faster than history tells us is possible.

This Biden v Trump table of polls explains why:

Donald needs a vaccine and fast!

It has to be this belief in a vaccine story combined with the “don’t fight the Fed” maxim (that has prevailed since the Coronavirus came to town) that’s driving Wall Street players to ignore the 10 reasons I offered on Monday to speculate that a sell off is imminent.

To be blunt, I don’t see it being anything like the crash from late February to March 23. It’s more likely to be a sensible pullback based on what US companies tell us in the current US reporting season over the next few weeks, which should make some rational market participants rework their numbers and take some profit.

That said, the economic readings out of the US have added fuel to the fires of optimism and the June jobs report was a case in point. In case you missed it, a record 4.8 million jobs were created in June against what economists expected, namely 2.9 million! Meanwhile, the unemployment rate fell to 11.1% from the 13.3% in May. Economists were expecting a rate of 12.4%, so it was a ripper of a report, if the numbers can be trusted.

On the local front, Victoria’s COVID-19 worries didn’t derail the stock market, with the S&P/ASX 200 Index up 2.6% for the week to finish at 6057.9.

S&P/ASX 200

This chart from the AFR showed I was right on Monday but after that the Wall Street leads helped us ignore the infections uptick in Melbourne and a related fall in consumer confidence. “The weekly ANZ-Roy Morgan consumer confidence rating fell by 4.6% to 93.0 – the most in 3 months…but sentiment is still up by 42.4% since hitting record lows of 65.3 on March 29,” said CommSec’s Craig James.

Over the week, tech stocks stood out, with the IT sector up 7.31% but Afterpay was the prime force behind that rising 18.4% to $67.50 over the week. And I was happy to see my tip — EML Payments — put on 5.6% and Zip Co was up 11.4%, while Tyro rose 12%. ELMO didn’t have an up-week but it’s up 7.2% for the month.

And optimism on Wall Street about the USA’s economic future always helps banks there. Here CBA put on 3.3% to $71.57, ANZ added 2.1% to $19.19, Westpac rose 3.1% to $18.54 and NAB was 1.8% higher to end the week at $18.74.

Be clear on this: our stock market has rebounded sensibly but the Yanks are ahead of themselves. We need to rise 18% to get back to the 7162 level we were at before the Coronavirus crash. In contrast, the Yanks are only 8% off their pre-crash levels and the Nasdaq is above them! And while we haven’t overdone it, if Wall Street revises its thinking on where fair value lies for the S&P 500 Index, then we will play follow the leader.

What I liked

  • The trade surplus eased to $8.03 billion in May (consensus: $9 billion surplus) from $7.83 billion in April. The surplus had hit a record high of $10.439 billion in March. The rolling annual surplus was a record high $77.29 billion in the year to May, up from $74.48 billion in April.
  • Australia’s annual exports to China were at new record highs of $150.5 billion in May, with annual exports to the US at a record $17.6 billion.
  • The CoreLogic Home Value Index of national home prices fell by 0.7% in June – the biggest decline in 16 months. Home prices were 7.8% higher over the year. In capital cities, prices fell by 0.8% (also the biggest fall in 16 months) but prices were still up 8.9% over the year. The price drop is small, which has shocked a lot of experts!
  • The AiGroup’s Performance of Manufacturing Index rose by a record 9.9 points to 51.5 in June. The index had hit 11-year lows of 35.8 in April, before improving to 41.6 in May. The ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index rose from a record low 44 in May to an 11-month high of 51.2 in June. Any reading above 50 indicates an expansion in activity.
  • According to CBA, card spending in the week to June 26 was up 4.5% on a year ago, compared to a 7.1% lift for the week ended June 19.
  • Private sector credit (effectively outstanding loans) fell by 0.1% in May – the first decline in almost 9 years – to be up 3.2% on the year. Business credit was down 0.6% – also the biggest fall in almost 9 years. Investor housing finance fell 0.3% – the biggest decline in 28½ years. But the falls are small, considering we’re in a recession!
  • This from AMP’s Shane Oliver: “China appears to have been successful in containing its recent outbreak in Beijing. Germany also appears to have contained a recent outbreak and new cases in the Eurozone are still tracking sideways. And there has been more positive vaccine news with another vaccine shown to produce antibodies to coronavirus.”
  • The Chinese (Caixin) purchasing managers’ index rose from 50.7 to 51.2 in June (forecast 50.5).

What I didn’t like

  • The value of motor vehicle imports fell by 47% to a 10½-year low of $1.165 billion in May but that could change when we start holidaying at home because we’re going to be banned from trips overseas until June 2021 at the earliest!
  • Council approvals to build new homes fell by 16.4% in May (forecast: -7.8%), after falling by 2.1% in April.

Watch this and hope it turns up again

 

This is Shane Oliver’s weekly economic activity trackers chart for Australia and the US. Shane says Australia faltered over the last week as re-openings stalled and consumers worried anew about the outlook. These activity trackers are based on high frequency data for things like restaurant bookings, confidence, retail foot traffic, box office takings, hotel bookings, credit card data, mobility indexes and jobs data, so they’re really real world-based.

These trackers will be second-wave dependent, so let’s hope the Victorian problem remains a Victorian problem. If infection rates spike nationally, it will hurt stock prices.

And this is why I’m prepared to wear a mask as my Switzer Daily story on Friday argued. (See it here at: https://switzer.com.au/the-experts/peter-switzer/we-need-no-guts-no-glory-politicians/ )

The week in review: 

On our YouTube channel this week: 

Top Stocks – how they fared:  

The Week Ahead: 

Australia  

Monday July 6 Job advertisements (June) 

Monday July 6 Monthly inflation gauge (June) 

Tuesday July 7 AiGroup Performance of Services index (June) 

Tuesday July 7 CBA Household card spending 

Tuesday July 7 Weekly consumer confidence (week to July 5) 

Tuesday July 7 Reserve Bank Board meeting 

Thursday July 9 Lending indicators (May) 

Overseas  

Monday July 6 US ISM services index (June) 

Tuesday July 7 US Economic optimism index (July) 

Tuesday July 7 US JOLTS job openings (May) 

Wednesday July 8 US Consumer credit (May) 

Thursday July 9 China Inflation (June) 

Friday July 10 US Producer prices (June) 

Food for thought: 

“People often say that motivation doesn’t last. Well, neither does bathing – that’s why we recommend it daily.” – Zig Ziglar 

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: 

There was a Wall Street boom on Friday due to a surprise rise in employment figures in the US. The chart below supplied by AMP Capital shows a spike in temporary layoffs due to COVID-19.

Top 5 most clicked: 

Recent Switzer Reports: 

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.