With an election dark cloud of uncertainty hanging over our share market and economy, stocks added 70 points over the week to see the S&P/ASX 200 Index rise 1.1% to close at 6251.3. Despite the start of the election campaign, this defiant rise brought back the words of ex-Westpac CEO David Morgan, who I interviewed two weeks ago.
David, who was also a former Deputy-Treasury Secretary and Richmond Tigers player, said that our greatest economic and market threats were “external.” External developments helped keep the stock market positive for the week and there’s a good chance that overseas forces overnight could easily again keep the vibes positive for our market next week.
So what excited US market players on Friday?
First, positive Chinese economic data gave Wall Street a reason to be positive. Second, J.P. Morgan reported better than expected and analysts are reducing their negative attitude to company earnings.
The CEO of the company, Jamie Dimon, gave the thumbs up to the economy and earnings and virtually told recession-predictors that they should get a new crystal ball.
Meanwhile, investors liked President Trump’s support for 5G and telcos did well. And Disney explained how its new streaming service gave the company an 11% boost, taking it into the top 20 companies list for the US stock market.
The end result was to take the market indices higher, with the S&P 500 within a percent of its all-time high!
If the China news doesn’t help us go higher again on Monday, it will be a surprise, with exports coming in 14% higher, which was close to two times more than was expected by economists!
“We’ve got a twin wind here,” said Jeff Kravetz, regional investment director at U.S. Bank Wealth Management. “We’ve got better-than-expected Chinese trade data and we’ve got a strong kick-off to earnings season. That’s pushing markets higher and instilling confidence with investors.”(CNBC)
A big attitude changer was the bullish remarks of Jamie Dimon and his views on the first quarter of earnings and the outlook for the US economy was at odds with the latest survey from Refinitiv, which tips first quarter profits from S&P500 companies will fall by 2.3% on a year ago.
These are all good news overseas stories to add to the ones that helped local stocks this week. Revelations from the US Treasury Secretary that continued progress on trade talks with China was happening not only has helped our market but partly explains why the S&P500 has been up nine days out of the past 10.
Other helpful overseas news was a longer settlement date for Brexit and oil prices continuing to trend higher.
Throw in the short-term $10 billion interest of Wynn Resorts in Crown Resorts and then the unearthing of another possible buyer for Crown stocks kept gambling stocks positive, with both Crown and Star Entertainment seeing their share prices spike. Crown was up 10% for the week and obviously is still in play ahead of an expectation that it could get a deal to operate in Japan, which is opening its borders to casinos.
Not having a great week locally was Bank of Queensland. The bank reported that its “cash earnings, income, quality capital levels, return on equity and profits were all lower for the first half. It also cuts its special dividend, with the company’s acting boss citing higher costs on the back of the Royal Commission. BOQ’s shares fell 7.7 per cent to $8.76.” (SMH)
Bendigo & Adelaide copped the backlash and also fell, making me wonder if the Royal Commission, which did its best to belt the Big Four banks, has been a plus for smaller banks. That deserves investigating. BOQ and Bendigo copped it and during the RC it was tipped that smaller banks would be the losers.
What I liked
- The Westpac/Melbourne Institute survey of consumer sentiment index rose by 1.9% to 100.7 in April, up from 98.8 points in March. But the sentiment index is below its long-term average of 101.3 and down 1.7% over the year to April.
- The ‘time to buy a dwelling’ index rose by 2.4% to 4-year highs of 119.4 in April.
- The value of lending to households rose by 2.6% in February, after falling 2.4% in January. And in seasonally-adjusted terms, the share of first-home buyers in the home lending market hit 6-year highs of 27.1% in February.
- The Reserve Bank has handed down the latest review of the financial system: “Overall, the financial system appears much better placed to respond to a range of challenges than it was a decade ago.”
- Tourist arrivals rose by 0.9% in February,the strongest gain in five months. And Aussie tourist departures fell by 3.3%, the biggest fall in almost two years.
- In February, a record 115,100 migrants arrived in Australia (defined as “permanent and long-term arrivals”). The annual number of net permanent arrivals (arrivals less departures) hit 5-year highs.
- Minutes of the last Federal Reserve meeting show that the majority of members expect the federal funds rate to remain on hold for the remainder of 2019.
- US producer prices rose by 0.6% in March (forecast +0.3%), with the annual rate up from 1.9% to 2.2% (forecast 1.9%). Remember, we like inflation nowadays as it implies better economic growth.
- US consumer prices rose by 0.4% in March (forecast +0.3%) with the annual rate up from 1.5% to 1.9% (forecast 1.8%).
- European banks rose by 1.2%, while the travel & leisure sector rose by 1.3% after the Brexit deadline was extended by six months.
- Chinese consumer prices rose by 2.3% over the year to March, up from 1.5% in the year to February. Annual growth of producer prices rose from 0.1% to 0.4%. More inflation!
What I didn’t like
- ANZ job advertisements fell for the fifth straight month, down by 1.7% in March, after falling by 0.8% in February. Ads were down by 6% over the year.
- The number of dwelling starts fell by 16.3% in the December quarter. Currently, 216,948 homes are being built – the lowest level in three years. And $72.9 billion of residential and commercial building work was yet to be done (completed), down from the record high of $76.4 billion in the June quarter.
- US factory orders fell by 0.5% in February, broadly in line with consensus.
- The International Monetary Fund (IMF) has downgraded its forecasts for the global economy, now tipping 3.3% growth in 2019, down from the 3.5% estimate made in January. The world economy is tipped to grow by 3.6% in 2020. (This was expected but the IMF is not a great forecaster.)
- Wall Street investors digested the downwardly-revised economic growth forecasts from the IMF.
- US investors also reacted negatively to new trade tensions between the US and Europe.
Winx or Amazon?
Today at Royal Randwick, Winx shoots for its 33rd win in a row in her final race ever in the Queen Elizabeth Stakes. This has been a graveyard race for two great retiring horses in Octagonal and Lonhro, so the great mare has to beat seven other horses and a hoodoo factor. And while I can’t help be amazed at the extraordinary Winx story, another one captured more of my thoughts this week and it was inspired by this from RBC Capital Markets analyst, Mark S.F. Mahaney, who has a $US2,300 price target on the e-commerce giant called Amazon. He’s tipping another 25% jump in its share price over the next 12 months! “[Amazon is] probably the single best long-term asset in ‘Net Land’, in our opinion,” he noted. “We view our Amazon Long Thesis as very well intact.”
If this guy is right and you put $100 on Winx today, you’ll make $6. But if you put it on Amazon – what a great name for a horse! – you’d get $25!
Apologies
If you were wondering why you didn’t receive this Report last Saturday, we sincerely apologise but our service provider let us down. They take money on Saturday but it seems they don’t work on Saturday when something at their end fails to work and therefore this Report doesn’t arrive in your inbox. We have been assured it won’t happen again but in case it does you can always access the Report on the website here [1].
The Week in Review:
- A likely Labor victory could frighten investors locally but the US setting for stocks looks very positive. All up, it’s good to go for stocks during 2019 [2].
- Paul Rickard looked at the Woolworths buyback [3] and said that, due to the high franked dividend component, it is a no brainer from a tax point of view for low rate or zero rate taxpayers to accept.
- In his first article for the Switzer Report, Percy Allan [4], the editor of Market Timing Australia, wrote that a negative yield curve is the most reliable pointer to when a bull market in shares is over or nearing its end.
- What does the Federal Budget mean for Australian shares and the share market? And what are the top picks post its announcement last Tuesday evening? Read Julia Lee’s article to find out [5].
- Tony Featherstone [6] said that short-sellers may have to rethink their position on JB Hi-Fi.
- James Dunn [7] looked at how the big three floats of 2018 – Coronado Global Resources, Viva Energy and Coles – are travelling now
- Our Hot Stock [8] of the week from CMC Markets’ Chief Market Strategist Michael McCarthy was Incitec Pivot (IPL).
- Downgrades again outnumbers upgrades in first edition of Buy, Hold, Sell – What the Brokers Say [9] this week as well as the second [10] edition.
- In Questions of the Week [11], Paul Rickard answered readers queries about franking credits; the tax-free threshold for retirees; and the Woolworths share buyback.
Top Stocks – how they fared: 
What moved the market?
- Prime Minister Scott Morrison announced May 18 as the date of the Federal Election.
- The United States and China continue to edge closer to a trade deal, while President Donald Trump threatened $11 billion in tariffs on goods imported from the European Union in response to Airbus subsidies.
The Week Ahead:
Australia
Tuesday April 16 – Reserve Bank Board minutes
Wednesday April 17 – CBA Business sales index (March)
Thursday April 18 – “Flash” purchasing managers index (April)
Thursday April 18 – Employment/unemployment (March)
Friday April 19 – Good Friday public holiday
Overseas
Monday April 15 – US Empire State Manufacturing Index (April)
Tuesday April 16 – US Industrial production (March)
Tuesday April 16 – US NAHB Housing Market Index (April)
Wednesday April 17 – China Economic growth (March quarter)
Wednesday April 17 – China investment/production/sales (March, yr.)
Wednesday April 17 – US International trade balance (February)
Wednesday April 17 – US Federal Reserve Beige Book
Thursday April 18 – ‘Flash’ Markit purchasing managers’ indexes
Thursday April 18 – US Retail sales (March)
Thursday April 18 – US Conference Board Leading Index (March)
Thursday April 18 – US Philadelphia Federal Reserve index
Friday April 19 – US Housing starts (March)
Friday April 19 – US Building permits (March)
Food for thought:
“Don’t look for the needle in the haystack. Just buy the haystack!” – John C. Bogle
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:
With 35 days until the Federal Election on May 18, CommSec published the following chart that shows the performance of the All Ords before and after the last five elections:
Source: CommSec
Top 5 most clicked:
- Has the bell tolled for the bull market? [4] – Percy Allan
- My top picks post the Federal Budget [5] – Julia Lee
- Woolworths buyback a “no brainer” for some [3] – Paul Rickard
- US recession-talk silenced. Is it time to buy? [2] – Peter Switzer
- Buy, Hold, Sell – What the Brokers Say [9] – Rudi Filapek-Vandyck
Recent Switzer Reports:
Monday 08 April: How is our share market travelling? [12]
Thursday 11 April: Has the bell tolled for the bull run? [13]
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.