Economic data and better-than-expected vaccine news has driven stocks higher again this week and the Yanks have been even able to ignore a disappointing jobs report because the bad news was expected to put pressure on the US Senate to finally agree on a stimulus.
Only on Thursday, US Senate Majority Leader Mitch McConnell said there was some positive movement in congressional efforts to reach a compromise on a new coronavirus aid bill.
And there are also other factors that might explain why Wall Street didn’t go negative on the number of 245,000 jobs created in November, rather than the expected 440,000. In fact the US markets traded at record highs for most of the day!
TD Ameritrade’s chief market strategist JJ Kinahan pointed out that some of the job losses are linked to the winding up of the 2020 Census project. He also told CNBC: “It’s really hard to estimate what these numbers are going to be when states are going from being completely shut down to being completely open. I think you’re seeing that in the market’s reaction.”
Meanwhile the US stock market seemed to get over concerns on Thursday that Pfizer might have supply chain problems with its vaccine that might halve the amount it expected to deliver this year.
Locally the big news story had to be the Australian economy growing by 3.3% in the September quarter, which was the biggest quarterly growth since 1976! This was a spectacular turnaround after the economy contracted by a record 7% in the June quarter and 0.3% in the March quarter. And while the economy is still down 3.8% over the year, the December quarter is also looking very strong and should have the tailwind of Victoria opening up.
In fact, that 3.3% growth number with Victoria in lockdown even gives that result more importance.
The news led Reserve Bank’s Governor Dr Phil Lowe to tell a Parliamentary Committee that “the economic recovery is under way and recent data have generally been better than expected.”
To the local stocks story, and our market was up for the fifth week in a row. The S&P/ASX 200 Index rose 33 points (or 0.5%) over the week to end at 6634.1.
On Friday, CBA was up 0.8% to $80.18, but it was Macquarie in the starring role putting on 2.3% to close at a huge $141.82 after a US fund manager acquisition.
All the banks did well indicating that the better economic outlook was bound to help bottom lines and dividends. Westpac rose 0.4% to $20.27, ANZ 1.3% to $23.20, while NAB put on 0.7% to $23.13.
To the materials, and the 0.6% rise in iron ore prices to $US137.08 helped our miners. Rio closed out at $113.20 (up 0.9%), while BHP was 0.6% higher to end at $41.50. Fortescue was up a huge 11% for the week to $20.61.
Julia Lee’s call on Whitehaven Coal, up 8% to $1.60 on Friday, continues to look good.
And what about the newbie called Nuix, an analytics company? Up 50.9% to $8.01 — that’s a story for next week!
Here’s a neat summary of the winners and losers this week from Bloomberg and the AFR.
What I liked
- A record 3.3% September quarter growth.
- The weekly ANZ-Roy Morgan consumer confidence rating rose by 2.9% to a 9-month high of 107.5 (long-run average since 1990 is 112.6). Sentiment has lifted in 12 of the past 13 weeks and is up by 64.6% since hitting record lows of 65.3 on March 29.
- Retail trade rose by 1.4% in October – slightly below the preliminary estimate of 1.6% – after declining 1.1% in September. Retail trade is up 7.1% over the year.
- The CoreLogic Home Value Index of national home prices rose 0.8% in November – the most since February (pre-pandemic). Prices were up 3.1% over the year.
- Company operating profits rose by 3.2% in the September quarter (consensus: 4%).
- Construction loans during the month totalled $2.9 billion, almost double the average $1.5 billion a month.
- For the first time in 2½ years, new car sales turned positive, with people buying 10,000 more cars in November than the same month last year.
- The ‘final’ IHS Markit services PMI rose from 53.7 to 55.1 in November – the highest reading since July.
- The Australian Industry Group (AiGroup) Performance of Construction Index (PCI) lifted from of 52.7 to a 2½-year high of 55.3 in November.
- The value of new loan commitments for housing rose by 0.7% in October to record highs. Loans are up over 34% in five months.
- The trade surplus rose by $1.6 billion to $7.46 billion in October. Australia has posted 34 successive monthly trade surpluses.
- The biggest ever month of iron ore exports.
- The spot iron ore price surged to $US136 a tonne this week – the highest since 2013 – as Australia’s trade surplus showed monthly iron ore exports reached a record $13.5 billion.
- Iron ore exports to October this year are already $13.2 billion ahead of the three-year annual average and present a significant boost to the government’s revenue and overall budget position.
- The ISM services index in the US fell from 56.6 to 55.9 in November (survey: 56). The ‘final’ IHS Markit services index rose from 56.9 to 58.4 in November (survey: 57.7). Any number over 50 means the sector is expanding.
- Chinese manufacturing was up 0.7 points; services were up 0.2 points.
- The ISM manufacturing index in the US fell from 59.3 to 57.5 in November (survey: 58). The ‘final’ IHS Markit factory index was steady at 56.7 in November (survey: 56.7). Not bad considering their terrible second-wave story!
What I didn’t like
- The US jobs report but it’s understandable, as the Americans have had an election and the second-wave infections are astounding! If it wasn’t for great vaccine news, stocks would’ve pulled back.
- Private sector credit (effectively outstanding loans) was flat in October and was up 1.8% over the year – the weakest annual growth in 10½ years.
- The US Federal Reserve Beige Book reported that “Most Federal Reserve Districts have characterised economic expansion as modest or moderate since the prior Beige Book period.” (The poor virus fighting story can’t be great for growth.)
- US Senate Majority Leader Mitch McConnell rejected a bipartisan proposal for a US$908 billion stimulus package.
- The Dallas Fed manufacturing index eased from 19.8 to 12 in November (survey: 14.3). The Chicago purchasing managers’ index fell from 61.1 to 58.2 in November (survey: 59).
Look at the likes & dislikes!
I’m regularly asked whether stocks can go higher in December and into 2021. To that question I say “look at the economic scoreboard”, which gets summed up in the likes and dislikes I do every Saturday. Today the score is 17 likes versus 5 dislikes. Given the biggest economic gamechanger is the vaccine news, I suggest we could see a short-term sell off linked to this silly stimulus standoff. But economic growth will roar back in 2021 worldwide, as we saw here in September, and that will power stocks in the months ahead.
By the way, one “like” not in my list is the fact that Caterpillar (one of the best bellwether stocks for a global economic recovery) hit a record high overnight!
If there is a pullback I will be a buyer of the stocks I like because this market rebound game isn’t over yet.
The week in review:
- There can be some bad years for stocks but next week, we’ll be able to test the stock market ‘rule of thumb’ that shares will return around 10% a year over a 10-year period [1].
- When it comes to fixed income, I look for expertise from people who have a great performance history and that’s why I’ve asked Chris Joye, founder of Coolabah Capital Investments to manage my newly launched higher yield fund [2].
- Paul Rickard wrote this week that even though time in the market rather than timing is the key driver of his core portfolio, re-balancing and re-weighting, throwing out the dogs and occasionally taking a bit of profit and trimming exposures [3] are strategies he employs.
- Paul also had a potential answer for the question, “Who’s the next Afterpay? [4]”
- While Treasury Wines (TWE) faces the wrath of investors from huge Chinese imposed tariffs, shareholders in the big dairy exporters – particularly those in the lucrative infant formula market – would also be feeling nervous. James Dunn looked at A2 Milk and 4 other infant formula players in his article this week [5].
- Cash used for transactions has fallen steadily in the past decade and has accelerated due to Covid. For his article this week, Tony Featherstone put forward three beneficiaries from the move to a cashless society [6].
- SuperGuardian’s Joshua Williams explained the work test exemption [7].
- For our “HOT” stocks of the week, Jun Bei Liu selected Treasury Wines Estates and A2 Milk [8].
- There were 9 upgrades and 12 downgrades in the first edition [9] of Buy, Hold, Sell – What the Brokers Say this week, and an equal number of upgrades and downgrades in the second edition [10] with 8 of each.
- And in Questions of the Week [11], Paul Rickard answered your questions about hedging offshore shares, a ‘Post Pandemic Recovery Fund’, IAG’s share purchase plan and whether to buy McPherson’s.
Our videos of the week:
- Webinar: Your rapid fire questions [12]
- Have the Beijing bad boys turned Treasury Wine Estates and a2 milk into screaming buys?! [13] | Switzer TV: Investing
- Top developer Gurner moves into build-to-rent & how to win at auctions! [14] | Switzer TV: Property
Top Stocks – how they fared:
The Week Ahead:
Australia
Monday December 7 – AiGroup Performance of Services (November)
Monday December 7 – Job advertisements (November)
Monday December 7 – Speech from Reserve Bank Governor
Monday December 7 – Credit & debit card lending (October)
Tuesday December 8 – Weekly consumer confidence (December 6)
Tuesday December 8 – Property price indexes (September quarter)
Tuesday December 8 – CBA credit and debit card data
Tuesday December 8 – NAB business survey (November)
Wednesday December 9 – Monthly consumer confidence (December)
Overseas
Monday December 7 – China International trade (November)
Monday December 7 – US Consumer credit (October)
Tuesday December 8 – US NFIB Business Optimism (November)
Tuesday December 8 – US Unit labour costs/productivity (Sep. quarter)
Wednesday December 9 – China Inflation (November)
Wednesday December 9 – US JOLTS job openings (October)
Thursday December 10 – US Consumer prices (November)
Thursday December 10 – US Monthly budget statement (November)
Friday December 11 – US Producer prices (November)
Friday December 11 – US Consumer sentiment (December)
December 7-11 – China Credit & money supply (November)
Food for thought:
“I love quotes…but, in the end, knowledge has to be converted to action or it’s worthless.” – Tony Robbins
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 below chart from Statista shows how many stocks in the S&P 500 have ended each month of 2020 in the positive. November had the second highest number of positive performers with around 93% of the index up for the month, just behind April when 96% of companies climbed higher:
Top 5 most clicked:
- 2 buys + 2 sells [3] – Paul Rickard
- FACT: Smart stock-picking or reliance on great fund managers gives good alpha returns [1] – Peter Switzer
- Is this company the next Afterpay? [4] – Paul Rickard
- A2 Milk & 4 other infant formula stocks [5] – James Dunn
- 3 stocks to cash in on in a cashless world [6] – Tony Featherstone
Recent Switzer Reports:
- Monday 30 November: Good alpha returns [15]
- Thursday 03 December: Why I launched the Switzer Higher Yield Fund [16]
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.