The US stock market was heading to new record highs before the close and how Wall Street can do that still even surprises me — someone who has proved time and time again that optimism works, especially in the long run.
Let’s see what got US share players positive, again!
And while Apple was up over 4%, which, along with the other FAANG stocks, partly explains why the S&P 500 is at record levels, there are signs that the stock market comeback is broadening to other companies.
A farm equipment company such as John Deere was up over 5% and this is a long way from high tech and businesses selling to those working from home.
Helping market optimism was US manufacturing activity hitting its highest level in 19 months in August, based on the readings from IHS Markit. Meanwhile the all-important services index was at its highest level in 17 months. Both these numbers explain why stock prices are improving for non-FAANG companies and partly justifies some optimism but there are still a lot of curve balls out there for companies and their stock prices.
Like what?
Apart from the second-wave threat, there’s a US election, a Trump-China trade war getting hotter by the week, unemployment is still double-digit and the US Budget Deficit is heading towards 20% of GDP!
On Thursday, the Labor Department said that initial weekly jobless claims came in above 1 million and the Democrats and Republicans are still squabbling over the next stimulus bill, yet stocks go higher! Despite all this, the Dow closed up 190 points overnight to 27,930.33.
Back home and the S&P/ASX 200 Index actually was down 15.1 points (or 0.2%) for the week to finish at 6111.2. The media thought geopolitical tensions and many of the US issues listed above spooked the stock market, despite some OK-to-great company reports from significant companies such as CSL, BHP, Coles and JB Hi-Fi.
My old mate AMP Capital’s chief economist, Shane Oliver, is a great overall company report assessor.
“The Australian June half profit reporting season is now 70% complete by companies and 80% complete by market capitalisation. While it’s clear that company earnings and dividends have been hit hard by the coronavirus shock, the hit has not been as bad as feared and most companies appear quite resilient and this in turn has enabled a majority (or 59%) of companies share prices to outperform the market on the day they reported and for the market as a whole to rise so far through August.”
It was a long sentence but carried a good short message that reporting was better than expected and feared. Maybe our market should’ve gone up this week but there are still companies along with the state of Victoria that are holding back a faster recovery for stocks.
Westpac’s no dividend announcement and more bad news to come from a new CEO who’s clearing the decks didn’t help bank stocks, though ANZ fell the least because it did come up with a reduced 25 cent dividend. This compares to a previous one of 80 cents!
ANZ lost 1.6%, NAB and CBA around 3% and Westpac understandably dropped 4.5%. Bendigo & Adelaide Bank was smashed, with its share price down 8.3% to $6.42. That’s what happens when you defer your dividend.
And the dangers of investing in mines in Africa were underlined with gold company Resolute Mining seeing its share price drop 9.9% after a coup in Mali where their mine is situated. Meanwhile, Treasury Wines copped a Chinese 22.8% smacking of its share price after it was accused of dumping. But this is a political payback for ScoMo playing hardball with President Trump on the likes of Huawei and other potential spying operations embedded in popular companies like TikTok. And Treasurer Josh Frydenberg this week said “no” to a Chinese dairy outfit taking over Lion’s dairy business.
Shock stock positive story for the week has to be Corporate Travel Management, which saw its share price spike a huge 20.88%, and yet we’re not flying, much. (See my final note below.)
The chart below gives you a snapshot of the companies that had the best and worst of weeks.
WiseTech Global shares soared 40% to $27.90, despite a mediocre report but its CEO said “it would halt its acquisition spree, and make the most of an increase in e-commerce transactions globally.” (AFR)
For the bigger picture of reporting season, I like this from Shane: “In this sense, it’s been similar to the US June quarter earnings reporting season. So far only 28% of results have exceeded expectations compared to a norm of around 44% but at least misses have only been 27%, so beats have roughly matched misses. Only 33% of results have seen earnings rise from a year earlier (compared to a norm of 66%) and 55% have cut dividends (compared to a norm of just 16%).”
And I especially liked this from Shane, as we all have a worrying take on the second-wave threat here and worldwide: “The good news though is that the second wave of new coronavirus cases in developed countries has continued to be far less deadly than the first wave with deaths running well below their April high whereas new cases have been well above. This is helping to avoid a return to generalised lockdowns in most countries – in favour of targeted measures.”
That said, he points to the Victorian lockdown and how it’s weighing on economic activity, with his Australian Economic Activity Tracker remaining well down from its July high, although it was basically flat over the last week, helped by a slight rise in consumer confidence and restaurant bookings.
“If Victoria continues to come under control, the economic recovery should resume sometime in the next month,” he predicts.
His tracker chart is shown below.
What I liked
- The weekly ANZ-Roy Morgan consumer confidence rating rose by 2.4% to 88.6 – the biggest increase in 11 weeks (long-run average since 1990 is 112.7). Sentiment is up by 35.7% since hitting record lows of 65.3 on March 29 (the lowest since 1973).
- According to CBA, card spending in the week to August 14 was up 3.6% on a year ago, compared to an 8.4% lift for the week ending August 7. Online spending rose 21.2% on a year ago (previous week: +20.8%), but in-store spending was down 4.5%.
- In seasonally-adjusted terms, the Internet Vacancy Index increased by 8.9% (or 10,700 job advertisements) in July 2020 to stand at 131,100.
- ‘Preliminary’ retail trade rose by 3.3% in July after rising by 2.7% in June. Retail spending is up 12.2% on the year – the strongest annual growth rate in 19 years.
- The Commonwealth Bank-IHS Markit ‘flash’ PMI for manufacturing eased from 19-month highs of 54 in July to 53.9 in August.
- The services PMI was down from a record high 58.2 (since records began in May 2016) in July to 48.1 in August. The composite PMI fell from 57.8 in July to 48.8 in August. A reading above 50 indicates an expansion in activity.
- The daily Australia Eastern Young Cattle Indicator has hit a record high of $7.78 a kilogram carcase weight yesterday, according to Meat & Livestock Australia (MLA).
- The Reserve Bank Board has assessed that Federal government fiscal policy measures would provide a net 4% boost to the economy in 2019/20 and 5% boost in 2020/21.
- US existing home sales for July saw a record month-over-month rise of 24.7% and the average selling price was another record high of $304,100.
- The NAHB housing market index in the US lifted to 78 in August from 72 in July (survey: 73)
- The People’s Bank of China said in a statement it was keeping the rate on 700 billion yuan (A$100.74 billion) worth of one-year medium-term lending facility (MLF) loans to financial institutions steady at 2.95% from previous operations.
What I didn’t like
- Mandurah in Western Australia had the highest jobless rate across Australia in July at 18%. Unemployment rates are also high in Wide Bay, Queensland (17%), Melbourne’s North-West (12.6%) and Coffs Harbour-Grafton, NSW (11.6%). Queensland has the highest unemployment rate at 8.8% and nine of the top 20 regional jobless rates in Australia.
- According to minutes of the last US Federal Open Market Committee meeting, there is an extraordinary amount of uncertainty in the economy at present, while the business sector continues to under-perform. The Fed is considering moves that could extend stimulus measures for a longer period.
- Reuters reported that “British Airways-owner IAG rose 7.6% and easyJet rose 3.3% on news that Britain’s government was working with Heathrow Airport on a plan to use COVID-19 testing to help shorten quarantine times.”
- Manufacturing conditions fell back in August in the New York and Philadelphia regions. The falls were modest given the second wave of coronavirus cases and both are around reasonable levels. Meanwhile, jobless claims continue to decline.
- Japanese June quarter GDP data confirmed a roughly as expected -7.8% quarter-on-quarter slump.
Travel overseas…what the #+^!
These numbers surprised me and I’m sure they will surprise you too. There were 18,300 arrivals at airports in July and 57,000 departures!
In 2018, the ABS said 10.5 million Aussies went overseas for short trips and we received 8.8 million tourists. That was a monthly average of 870,000 departures and 730,000 arrivals each month. That’s the impact of the Coronavirus and explains why the likes of Webjet and Flight Centre have huge upside, provided they survive this challenging pandemic.
The week in review:
- This week, I got up close and personal with ELMO Software [1], which is one of the stocks I tipped in my ZEET stocks (the next wave of WAAAX stocks) in June.
- Paul Rickard gave you his view on whether there are better stocks than Telstra to have in your portfolio, and whether Telstra will cut its dividend. [2]
- Tony Featherstone looked at a possible rise in inflation and suggested 7 high-quality companies [3] that should be mainstays in your portfolio, regardless of any future inflation push.
- Maureen Jordan returned with her “HOT” stocks! Michael Wayne [4], Managing Director of Medallion Financial Group explained why he likes Pushpay (PPH) but doesn’t like Tabcorp (TAH). And Burman Invest’s Julia Lee [5] explained her top stock pick and a stock that has fallen out of favour with her.
- James Dunn gives you his view on the companies that reported their earnings [6] this past week.
- And in Buy, Hold, Sell – What the Brokers Say, there were 12 upgrades and 10 downgrades in the first edition [7] and 10 upgrades and 8 downgrades in the second edition. [8]
- Also, Paul (Rickard) and I go through the results from some of the biggest companies who reported their earnings this week- CSL, BHP, JB Hi-Fi, A2 Milk and Wesfarmers. [9]
- In Questions of the Week [10], Paul Rickard answered your questions about: Sydney Airport’s entitlement issue – should I invest? Is ANZ’s dividend fully franked? How do they work out a closing stock price? If I buy a property in my SMSF – will I be OK with the ATO on diversification?
Our videos of the week:
- Boom! Doom! Zoom! | August 20, 2020 [11]
- The hot companies to follow out of reporting season! [12] | Switzer TV: Investing
- Is it time to invest in office blocks & shopping centres? [13] | Switzer TV: Property
Top Stocks – how they fared:
The Week Ahead:
Australia
Monday August 24 – Household impacts of COVID-19 survey (June)
Tuesday August 25 – Weekly CBA card spending (August 21)
Tuesday August 25 – Weekly consumer sentiment (August 23)
Tuesday August 25 – Weekly payroll jobs & wages (August 8)
Tuesday August 25 – Preliminary international trade (July)
Wednesday August 26 – Construction work done (June quarter)
Thursday August 27 – Business investment (June quarter)
Thursday August 27 – Business impacts of COVID-19 survey (Aug.)
Overseas
Monday August 24 – US Chicago Fed National Activity index (July)
Tuesday August 25 – US S&P/Case-Shiller home price index (June)
Tuesday August 25 – US FHFA house price index (June)
Tuesday August 25 – US Consumer confidence index (August)
Tuesday August 25 – US New home sales (July)
Tuesday August 25 – US Richmond Fed manufacturing index (Aug.)
Wednesday August 26 – US Durable goods orders (July)
Thursday August 27 – China Industrial profits (July, annual)
Thursday August 27 – US Economic (GDP) growth (June qtr., annual)
Thursday August 27 – US Pending home sales (July)
Friday August 28 – US Personal income & spending (July)
Friday August 28 – US Goods trade balance (July)
Food for thought:
“There were times when deep down inside I wanted to win so badly I could actually will it to happen. I think most of my career has been based on desire.” – Chris Evert
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 voting patterns, segregated by party, show how voters are expected to carry out their votes on US election day in November. These statistics come in after the political spotlight was put on the US Postal Service this week.
Top 5 most clicked:
- Buy, Hold, Sell – What the Brokers Say [7] – Rudi Filapek-Vandyck
- My “HOT” stock 1 [4] – Maureen Jordan
- What’s ahead this week for companies reporting? [6] – James Dunn
- 7 high-quality companies that are cornerstones of any portfolio [3] – Tony Featherstone
- Buy, Hold, Sell – What the Brokers Say [8] – Rudi Filapek-Vandyck
Recent Switzer Reports:
- Monday 17 August: My up close and personal view on ELMO Software (ELO) [14]
- Thursday 20 August: 7 stocks to withstand an inflation push [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.