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Our three-week losing streak was ended by a nice day at the office for stocks but the biggest worry is that there was no clear reason for it. I’d like to think it was a lower dollar and a view that we have a stronger economy but that could be jumping to optimistic conclusions.

That said, I do think the dollar’s dive from 81 US cents a month ago to the current level of 77.77 US cents is encouraging our stock market but it’s hardly a big bang for the buck’s depreciation. Hopefully this currency slide is a ‘work in progress’ thing.

The S&P/ASX 200 Index was up a nice 58 points on Friday, taking the gain for the week to 0.51% but we are still locked into that damn trading range of 5670 to 5800 or so. The best thing going for us is the fact that the December quarter is historically good for stocks and numerous fund managers think we should break out between now and when the Santa Claus rally comes to town.

Who will be Santa and what will he bring?

That’s easy. It will be Congress, and this mob needs a sack for Trump tax reforms. If this happens, then we’ll beat that trading range restriction.

As CommSec’s Craig James pointed out on Friday: “US share markets rose for an eighth consecutive day to fresh record highs on US budget and tax reform optimism.” Good tax news is good for stocks.

Back on the local stock market and pundits think we played follow the leader on Friday – at last!  Wall Street, however, has been challenged by a weaker-than-expected jobs report, though the “blame it on the hurricane” excuse looks plausible.

This was a big miss, with 80,000 jobs expected but in fact 33,000 were actually lost! As I said – that’s a big miss and is the first monthly job decline in seven years!

Despite this, the unemployment rate fell from 4.4% to 4.2%, which shows you how a big wind can hit participation rates and make jobless numbers look good.

To explain how hurricanes kill jobs, check this out in the New York Times from Carl Tannenbaum, chief economist for Northern Trust: “The numbers were certainly blown around a lot by the storms. The interruptions created in the hurricane regions were seen in leisure and hospitality especially, which had a huge decline.”

Wall Street will bank these numbers as not having long-term relevance and it could actually help stocks by delaying the Fed’s December rise. But Tannenbaum believes that the US central bank will be “looking past” these wind-blown numbers.

Let’s go back home and the big disappointment of the week was the 0.6% slump in retail figures, which could prove roguish and one of the funniest quotes from an economist for the year to give ‘weight’ to my argument. Bank of Melbourne economist, Janu Chan, looked at the big fall in food sales in places like cafes and wryly suggested that: “Apparently, Australians were dieting over August!”

Our retail numbers now compete with the new age of ‘shopping’ experiences, such as massages, manicures, car washing, gym outlays and so on. A consumer’s budget is limited but a lot of Aussies now find dollars for services, while online sales and discounters, such as Zara and H&M, help keep shoppers shopping but if the volume is the same and the prices are falling, then guess what – retail numbers fall.

But if we’re still spending elsewhere on services, then it actually could be better for jobs because services actually need those outdated things called people!

Market experts think this retail number will push out the next rate rise, which should be good for stocks both from the ‘cost impact on consumers’ effect and the lower dollar impact.

Morgan Stanley thinks this to be the case and so is supportive of resource stocks going forward on the basis that “the global synchronized recovery is gaining traction…”

Materials was the best performing sector over the week, up 2.3%, while financials were up 0.6% and healthcare stocks rose 1.1%.

It wasn’t great for yield-players with utilities off 2.5%, telecoms down 1.1% and property stocks off 0.8%.

But there’s no trend with the persistent pattern of stocks that were despised last week becoming buys next week and vice versa. One pattern that has persisted since April and is often the case is the willingness for the market to ‘buy the dip’ when good stocks get caned by the market.

Of course, CBA and the other banks are cases in point and I’m starting to see more believers for Telstra at these lower levels. We could, and I say could, be close to the bottom for this much-maligned telco with its current yield over 9% fully franked.

What I liked

• Waking up every morning and seeing Wall Street up again! The data and tax cut talk explains it but you’d think there’d be enough sellers in the USA, eventually, to create a bit of a pullback. (Pray for Donald and his tax cuts because if he fails on this, stocks will drop.)
• The Department of Industry, Innovation and Science’s higher earnings forecast from iron ore and metallurgical coal in the current financial year but it does see export earnings decline in fiscal 2019.
• Bond yields fell on the bad retail number but they rebounded by week’s end. I take bond yield direction as a proxy for the consensus view of where our economy is heading. Yield up and bond prices down, think economy up.
• The trade surplus rose from $808 million in July (previously reported as $460 million) to $989 million in August. The rolling 12-month surplus rose from $14.0 billion to a record $16.8 billion. Exports to China hit a record $98.6 billion in the year to August.
• The CBA Purchasing Manager’s Index for the services sector fell 1 point to 53.2 in September. The index remains over 50, signifying expansion of the services sector.
• The RBA left the cash rate at a record low of 1.5% for the 14^th straight month (13^th meeting). The Reserve Bank maintained its “neutral stance”.
• Approvals by local councils to build new homes rose by 0.4% in August after falling 1.2% in July and soaring by 11.1% in June. In trend terms, approvals rose for the seventh straight month, up by 1.1%. (CommSec)
• Job advertisements fell for the first time in seven months but were just down less than 0.1% in September to 180,700 ads. Job ads were at 6-year highs in August and are up 12.5% on a year ago.
• The CoreLogic Home Value Index of capital city home prices rose by 0.3% in September to stand 8.5% higher over the year. The national home price index was up 0.2% in September to be up 8% over the year. It was the smallest annual change in national prices in seven months and a cooling housing market is OK.
• The Australian Industry Group Performance of Manufacturing Index fell by 5.6 points in September but the index is coming from a 15-year high of 59.8 in August to 54.2 in September. A reading above 50.0 indicates that the sector is expanding.
• US factory orders rose by 1.2% in August (forecast 1.0%) having declined by 3.3% in July.
• The ISM non-manufacturing purchasing managers index in the US rose from 55.3 to 59.8 in September – the highest level since August 2005!
• The ISM manufacturing index in the US rose from 58.8 to a 13-year high of 60.8 in September (forecast 58.0).
• China watch and the official manufacturing gauge rose from 51.7 to a 5-year high of 52.4 in September, with the services gauge up from 53.4 to a 3-year high of 55.4.

What I didn’t like

• The Department of Industry, Innovation and Science’s outlook for oil and gas prices over the next two years is likely to limit growth in Australia’s LNG export earnings.
• The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.6% last week to 113.4, after falling 0.6% in the previous week. Confidence is down 3.8% over the year but above the average of 113.2 since 2014 and above the long-term average of 112.9.
• Retail trade falling 0.6% in August after a downwardly revised fall of 0.2% in July. Annual sales growth fell from 3.5% to 3.1%.
• In seasonally-adjusted terms, new home sales rose by 9.1% in August after falling a (revised) 15.4% in July but sales are below 5-year average levels, though this average comes out of a high activity period.
• According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totaled 100,200 in September, down 2.4% on a year ago but we have been at record highs.
• The Catalonia rubbish – we don’t need any Cat-exits to worry markets.

Vale Tom Petty

I was sad to see a great singer like Tom losing out to a cardiac arrest. I’ve always loved his “I Won’t Back Down”. It’s a great song about values and doing what’s right in a world that will try to drag good principles down. And along with my business partners and my staff, I stand my ground on doing the right thing.

But in a more funny way, it powers me to stay optimistic on stocks when the facts and figures say it’s right for me “to stand my ground.” Doomsday economists, fund managers and desperate journos looking for a scary story try to push us around into being negative. Until you need to change, I recommend you stand your ground.

It’s not a petty issue – it’s an important issue for wealth-building. And I thank Tom’s song for helping me stay on course.

P.S. My Weekend Switzer story this weekend looks at how success is often based on not following the herd, wanting to win, keeping your focus and sometimes asking yourself “is the opposite true?”

The week in review

• James Dunn reassesses the energy market as the government steps in to cull LNG exports, with five stocks to keep an eye on.
• Plus, Charlie Aitken explains why he thinks the Eurozone economy is now more vibrant than the US.
• Paul Rickard updates the income and growth portfolios after an underwhelming September.
• Tony Featherstone looks at the changing health insurance market to discuss why the smaller players are standing out.
• In Buy, Sell, Hold – What the brokers say, Lendlease got an upgrade, while Synlait and A2 Milk took a tumble after last week’s record high.
• In Questions of the Week, Paul Rickard responds to a reader facing financial difficulties and answers a query about investing in XTBs.

Top stocks – how they fared

What moved the market?

• The US market continued its bull run, with the S&P 500 posting an eight-day winning streak, and on Thursday and its sixth straight record close.
• Australian retail trade figures turned sour in August, with total retail trade tanking 0.6% in August – its worst month in almost four-and-a-half years
• Low wage growth, higher gas bills and out of cycle mortgage rate increases have been blamed for the slump in consumer spending.

Calls of the week

• Bob Hawke called Turnbull’s same sex marriage the worst economic decision made by any prime minister.
• And I made a counter call to that with my own argument!
• Britain is a “walking dead of debt” country that will feel the effects of the global financial crisis (GFC) indefinitely, according to economist Steve Keen.
• Charlie Aitken backed the Eurozone over the US, calling it a more “vibrant” economy.
• Tony Featherstone threw his weight behind nib Health Funds and said smaller health-insurance providers have good potential in today’s climate.

The week ahead

Australia

• Tuesday October 10 – Speech by Reserve Bank official
• Tuesday October 10 – Weekly consumer sentiment
• Tuesday October 10 – NAB business survey (September)
• Wednesday October 11 – Monthly consumer sentiment
• Wednesday October 11 – Building activity (June quarter)
• Thursday October 12 – Credit & debit card lending (August)
• Thursday October 12 – Housing finance (August)
• Friday October 13 – Housing occupancy & costs
• Friday October 13 – Financial stability review

Overseas

• Wednesday October 11 – US FOMC meeting minutes Minutes from last policy-making meeting
• Thursday October 12 – US Producer prices (September) “Core” prices are up 2% on the year
• Thursday October 12 – US Claims for unemployment insurance Weekly gauge on the job market
• Friday October 13 – US Retail sales (September) A 0.4% increase is expected
• Friday October 13 – US Consumer prices (September) Result is pivotal to rate hike expectations
• Friday October 13 – US Consumer sentiment (October) Preliminary reading for the month
• Friday October 13 – China International trade (September) Key gauge of economic activity

Food for thought

“Success is walking from failure to failure with no loss of enthusiasm.”

— Winston Churchill

Last week’s TV roundup

• There seems to be no slowing the US S&P 500 on its record breaking run. Lance Lai from Accountancy Invest returns to Super TV to discuss the world markets and reflect on last month’s predictions.
• AMP Capital’s Shane Oliver joins Switzer TV to explain this week’s disappointing retail data.
• Will this month be another “rocktober” for the stock markets? Julia Lee of the Australian Stockbrokers Foundation joins Switzer TV to evaluate the market.
• Economics commentator Terry McCrann of News Corp gives his take on the Reserve Banks messaging.
• The best way to make money is to pick the right stocks at the right time. Raymond Chan of Morgans reveals what stocks are on his radar.
• David Giles of Switzer Advisory looks at the things you need to know if you want to put property into your super fund.

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.

This week, one of the biggest movers was Retail Food Group, with its short position decreasing by 3.19 percentage points to 10.79%.

Meanwhile, Independence Group saw the biggest increase at a rise of 0.73 percentage points to 17.19%.

Source: ASIC

Top 3 most clicked stories

• James Dunn – Energy spotlight: 5 stocks to watch
• Staff Reporter – Buy, Sell, Hold – What the brokers say
• Paul Rickard – Portfolios underwhelm in September

Charts of the week

The above chart shows that Australians are spending more of their family budget on holidays than ever before.

Trend alert — Utes are making a comeback in a big way. Despite overall dropping vehicle sales, purchases of light commercial vehicles (that’s the Ute) were up 9.6% in private sales over the year.

Recent Switzer Super Reports

• Thursday 05 October, 2017 – Energy in focus

 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.