One of our great subscribers sent me an email with the tag line: “To put a smile on your dial for the day.” Smithy was wrong — I’m still smiling!
The story came from Michael Carmody of Centennial Asset Management, who not only talked up the potential of the market index to head higher, he also nominated two stocks he liked, big time. Better still, he thinks this rally has a lot more time left in it, so you can see why I’m still smiling.
Despite the overall market indexes trading near all-time highs, Carmody says: “We believe the investment outlook remains positive and expect the market to continue rallying over the next 12-24 months. Notwithstanding the recent rally, we are staying long this market and see the best opportunities outside the Top 50 stocks.”
(By the way, check out my interview with Jason Teh, the fund manager of the Switzer Dividend Growth Fund on tonight’s TV show.)
Reinforcing his positive view, Carmody points out that historical data says investing when the market is at historical highs actually is a smart idea! “According to J.P. Morgan, investing on days when the S&P 500 closed at a new all-time high can actually produce better returns than investing on a day when the market didn’t set a new record,” he reports. “The market at an all-time high is a sign that investors have confidence in the future and the direction of the economy.”
Sure, there will be an all-time high that will usher in a crash or big pullback but there is a danger of getting too scared, too early. “Without new all-time highs, markets cannot rally. While there are always arguments on both sides, it is important to recall that markets go up in the long term,” Carmody reminds us. “Since 1900, the Australian market has delivered a positive yearly return 81% of the time and returned an average of 13.2% per annum.”
Supporting his optimism for stocks is Fidelity Investments’ Jurrien Timmer, who argued the following: “The current bull market cycle is now 20 months old and produced a 53% gain (from the October 2022 low to the most recent high). By historical standards, there seems to be plenty of life left for this bull, given the median 30 months and 90% gains that have been produced over the past 100 years or so.”
And here’s a point Carmody makes that shouldn’t be forgotten in advising us to avoid being too worried by newspaper headlines: “It is important to remember that markets are forward pricing instruments, and today’s headlines have largely been priced 9-12 months ago”. Like me, he thinks the case for rate hikes is weak and bad news on the economy will be good for rate cuts and then stock prices, especially mid-and small-cap stocks. He also likes the “…increased Investor confidence” which is delivering a lift in market corporate activity compared to a year ago, and he cites the following examples:
- NextDC (NXT) announced a capital raising of $1.3 billion to fund future data centre development.
- Ansell (ANN) raised new capital ($400 million) to fund the acquisition of Kimberly-Clark’s Personal Protective Equipment business.
- BHP unsuccessfully bid for Anglo-American. The proposed transaction was valued at approximately $60 billion.
- Nick Scali (NCK) announced a capital raising to fund the acquisition Anglia Home Furnishings (Fabb Furniture) in the UK.
- Macmahon Holdings (MAH) announced a scheme implementation deed to acquire 100% of Decmil (DCG) for cash.
- Macquarie Technology (MAQ) raised $100 million of fresh capital to acquire additional land and buildings at its existing data centre campus.
Carmody concluded liking Generation Development Group (GDG) and GQG Partners (GQG). GDG is a specialist provider of tax effective investment bond product solutions and services. The company has a well-established track record for delivering consistent funds under management (FUM) growth (+25% 3-year compound annual growth rate – CAGR). Meanwhile, GQG is a darling of the market, which has had a great run.
This is what FNArena’s experts think:
GDG’s consensus rise is 8.63%
GQG’s consensus rise is 4.3%
They do look like pretty safe bets, though GQG’s support has been huge and has been hitting a lot of all-time highs recently. But all-time highs aren’t necessarily a threat for overall markets, so the same thinking can apply to individual company’s share prices.
GQG
I guess the history of Amazon, Facebook, Apple, Alphabet, Nvidia and so on supports this case.
Important informati on: 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. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
