The US jobs report missed expectations, with employment up 164,000 against an expectation of 195,000. However all three stock market indexes were up strongly, giving our market a strong reason to keep defying the old “sell in May and go away” rule of thumb.
So what explains why the Dow was up 700 points plus from Thursday’s low?
Let me list the likely reasons:
- The job numbers can’t make the Fed be too aggressive with interest rate rises.
- That’s 91 consecutive months of job gains!
- Unemployment fell to 3.9% – an 18-year low.
- The average hourly earnings growth rate rose by 0.15%, rather than the expected 0.2% rate and wages have increased by 2.6% over the past year, which isn’t much faster than inflation. The Fed watches the earnings per hour number closely for inflation signs.
- The February and March job numbers were revised up by 30,000.
- And Warren Buffett went Apple mad overnight, buying, wait for it, 75 million shares in the late Steve Jobs’ beloved company! The stock beat its one time all-time record high of $183.50.
That really powered up the Dow, the S&P 500 and especially the Nasdaq.
“Tech is having a good day and obviously Apple is helping. The Warren Buffett headlines have helped give momentum to share prices,” said Quincy Krosby, chief market strategist at Prudential Financial on CNBC.
Selling in May just got harder for US investors, with the economy looking solid, earnings impressive and tech companies such as Apple getting love from the likes of the Oracle of Omaha, Warren Buffett. CNBC calculates that “the stock is now roughly $20 per share short of a $1 trillion market cap.”
But underpinning the overall market remains the two E’s: the economy and earnings.
“We’ve continued to add jobs routinely every month for so long, and the unemployment rate we have reached is amazing,” said Catherine Barrera, chief economist of the online job site ZipRecruiter. “It’s very incredible.” (New York Times)
Meanwhile, AMP’s Shane Oliver has kept score on earnings in the States. “US March quarter earnings results are now 80% done, with 77% beating on profits and earnings running up 24% on a year ago,” he reported on Friday.
And I reckon the appetite to buy stocks on Wall Street and on Times Square (that’s where the Nasdaq resides) is subdued because there remains some apprehension and anxiety over trade tensions.
The New York Times recently reported that
“President Trump’s flirtation with a trade war has thrust uncertainty into the overall economic picture,” it explained. “The White House has offered little clarity about whether its newly imposed steel and aluminum tariffs will extend to allies like Mexico, Canada and the European Union, and it seems no closer to smoothing over economic tensions with China.”
The US and China (the two trade adversaries) are currently talking trade in Beijing right now. If negotiations don’t work out well, then we may well see some significant selling in May.
Beware Trump tweets this weekend!
On the local front and we lived through the best weekly gain for stocks in over a year! Sure, Friday was a downer, losing 35 points on the S&P/ASX 200 Index to end at 6062 but the gain for the week was 1.84%.
So what’s changed?
Well, there have been less Trump tweets to spook Wall Street and then our market.
We’ve had less damaging news from the Royal Commission.
Next, the APRA report into the CBA was damning of too much bro-love at the top levels of the bank, which stifled objective self-criticism and care for ‘outsiders’ like customers, but the overall tone of the assessment wasn’t damaging for the stock. Despite a bad Friday where the stock slipped $1.15 to $72.76, for the week it gained nearly a dollar and the sector was up 2.4% over the week.
However, one bank that has had a Teflon-clean experience over the time of the Royal Commission is Macquarie, which shot the lights out, hitting all-time highs for a moment on Friday, after showing a huge spike in profit. This is now a $108 dollar stock, despite slipping to be up only 0.2% for the day’s trade.
Meanwhile, Qantas continues to soar, with a 7.5% jump in third quarter revenue and Seven West Media was up a huge 27.3% after the ACCC didn’t stand in the way of an acquisition in Ten’s stake in TX Australia. This is a joint venture company owned equally by the three commercial metropolitan television networks, Seven, Nine and Ten. TXA: owns, operates, manages, engineers, maintains and markets transmission and retransmission facilities in the five major mainland metropolitan cities of Australia.
TEN says it will legally fight the ACCC’s position.
On the economics front, I hope the RBA Governor is the best economist in the country, especially after he prognosticated that “This year and next, our central scenario remains for the Australian economy to grow a bit faster than 3 per cent. Inflation is expected to remain low, at around its current level for a while yet, before gradually increasing over the next couple of years, towards 2½ per cent.”
That would be a Goldilocks result.
What I liked
- These RBA forecasts:
- The Australian Industry Group Performance of Manufacturing Index fell by 4.8 points to 58.3 points in April. The CBA/Markit Manufacturing Purchasing Managers’ Index rose by 1.2 points to 55.5 points in April. Both surveys have readings above 50 points, indicating that the manufacturing sector is expanding.
- The CoreLogic Home Value Index of capital city home prices fell by 0.3% in April to stand 0.3% lower over the year. The national home price index fell by 0.1% in the month but was up 0.2% over the year. It was the first annual decline in capital city home prices in 5½ years. (I don’t like falling prices generally but given the fears around a house price bubble, this is a good result.
- The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7% to an 11-week high of 119.2. Confidence is up by 6.1% over the year and above the average of 113.6 since 2014.
- The trade surplus rose by $178 million to $1,527 million in March. Net exports are expected to add 0.6 percentage points to March quarter economic growth.
- According to the Federal Chamber of Automotive Industries (FCAI), new vehicle sales eased from a record high of 1,201,309 units in the year to March, to 1,201,134 in the year to April. The number went down but from an elevated level.
- The CBA Purchasing Managers Index (PMI) for the services sector eased from 55.6 points in March to 54.2 in April. Readings over 50 signify services sector expansion.
- Council approvals to build new homes rose by 2.6% in March, after falling 4.2% in February. Over the year to March, the value of building approvals hit a record high of $126.4 billion.
- Private sector credit (effectively outstanding loans) rose by 0.5% in March, after a 0.4% rise in February. Annual credit growth rose to 5.1% in March. Loans and advances by non-bank financial intermediaries rose by 7.1% in the year to March (fastest rate in 9½ years).
- The Caixin services purchasing managers’ index (in China) rose by 0.6 points to 52.9 points in April, above market forecasts for 51.9 points. Results above 50 points imply expanding activity.
- The Fed said inflation had “moved close” to its 2% target and that “on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term.”
- The ISM New York index spiked higher from 54.0 to 64.3 in April.
- The Markit manufacturing purchasing managers index in the US rose from 55.5 to 56.5 in April.
- US personal income rose by 0.3% in March (forecast +0.4%), with spending up 0.4% as expected.
What I didn’t like
- US investors remained concerned about trade issues, especially between the US and China.
- US Construction spending fell by 1.7% in March (forecast +0.5%).
- US new vehicle sales fell from a 17.48 million annual rate in March to 17.15 million in April (forecast 17.1 million).
- In seasonally-adjusted terms, new detached house sales fell by 2% in March. Sales fell by 2.2% during the March quarter and by 4.1% over the year.
And while I think of it…
If you’d like to be a part of an audience for a special recording in Sydney of my Sky Business TV show, Money Talks, where we give you a chance to ask questions, email Maureen@switzer.com.au [1] In the subject heading put the words Money Talks. We will be filming on Thursday 17 May at 5.30pm. There are limited seats so if you want to attend then get in quick. Look forward to meeting you.
The Week in Review:
- We finally are in the month of May. Will this be a sell in May and go away year? [2] Or will this rule get Trumped? I look at recent history to find out.
- Paul Rickard put the Centuria Diversified Property Fund to the test. Find out what he had to say here [3].
- Charlie Aitken also asked the question if May is a time to sell. Considering the S&P/ASX 200 is above 6000 [4], it could be time to take some profits.
- Most of the industry has not fared well from the Royal Commission, but there are still companies offering good value. James Dunn named financial service companies you can still bank on. [5]
- Tony Featherstone looked at 4 superhero companies to investors’ rescue [6].
- What will Warren Buffett have to say this year? [7] Barrie Dunstan discussed the thoughts of the billionaire in his article.
- In the first Buy, Hold, Sell – What the brokers say [8], Healthscope gets two upgrades after its takeover bid, and one downgrade.
- And in the second Buy, Hold, Sell – What the brokers say [9], the brokers had a slow week, but Xero managed to score one upgrade.
- It looks like AMP has done its dash. So many distortions of truth to the regulator, and too much time taken to recognise it has done something very very wrong. Read this week’s Hot Stocks. [10]
- Jun Bei Liu, deputy portfolio manager at Tribeca Investment Partners, explained what’s so special about this global provider of satellite-based communications networks, for the Professional Pick [11] this week.
- Plus, Paul Rickard answers all of your Questions of the Week [12] about Challenger’s share price fall and the new global LIC from Wilson Asset Management.
Top Stocks – how they fared:
What moved the market?
- APRA released its governance review of CBA.
- Profit reports and trading updates from ANZ, NAB, Macquarie, Qantas, JB-HiFi and others.
- The aussie dollar continued to soften lending support to some of our high flyers.
Calls of the week:
- With the scandalous revelations coming out of the Banking Royal Commission, James Dunn named some financial service companies that you can still bank on.
- Cricket Australia named Justin Langer as the new men’s cricket coach.
- Catherine Brenner “fell on her sword” as AMP chairman.
The Week Ahead:
Australia
- Monday May 7 – NAB business survey (April)
- Monday May 7 – ANZ job advertisements (April)
- Monday May 7 – Performance of Construction (April)
- Tuesday May 8 – Weekly consumer sentiment
- Tuesday May 8 – Retail trade (March)
- Tuesday May 8 – Federal Budget
- Friday May 11 – Housing finance (March)
Overseas
- Tuesday May 8 – China International trade (March)
- Tuesday May 8 – US Consumer credit (March)
- Tuesday May 8 – US NFIB business optimism (April)
- Wednesday May 9 – US JOLTS job openings (March)
- Wednesday May 9 – US Producer prices (April)
- Thursday May 10 – US Consumer prices (April)
- Thursday May 10 – China inflation (April)
- Friday May 11 – China Money supply & lending (April)
- Friday May 11 – US Export & import prices (April)
- Friday May 11 – US Monthly budget (April)
Food for thought:
“If a bat and a ball cost $1.10 (all together) and the bat is $1 more than the ball, how much is the bat?”
(Hint: it’s not $1. Email subscriber@switzer.com.au [13] your answers)
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:
Top 5 most clicked:
- S&P/ASX 200 above 6000: is it time to sell in May? [4] – Charlie Aitken
- Will this be a sell in May and go away year? [2] – Peter Switzer
- Financial services companies you can still bank on [5] – James Dunn
- What will Warren Buffett have to say this year? [7] – Barrie Dunstan
- 4 superhero companies to investors’ rescue [6] – Tony Featherstone
Recent Switzer Super Reports:
Thursday 3rd May: Up,up and away? [14]
Monday 30th April: May flowers [15]
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.