I’ve been saying we needed something too good or too scary to move the stock market with more momentum. Well, it looks like we have something. However, no one is sure what it is!
No, it wasn’t a very poor jobs report, which says the US recovery can’t be trusted, nor is it the phony excuse about weather hurting economic data.
Nor was it a too good jobs report, that says tapering ends more quickly than expected and therefore interest rate rises are closer than most thought.
So, what was it that took the Dow down nearly 1% and shook the Nasdaq off a big 2.6% or so?
As I said, it wasn’t the 192,000 jobs created in March, after 200,000 was the guess by expert economists. This followed 197,000 that bobbed up in February. So employment-wise, the recovery looks believable. And I bet if the weather wasn’t so bad that economists have been talking about “frozenomics”, these labour market stats would be way stronger.
And it wasn’t the unemployment result that came in at 6.6%. Once upon a time it was thought the Fed might think about rate rises, if the jobless rate dropped to 6.5%. But the Fed has changed their view on this in recent times. So let’s rule that out as an excuse.
Next week, earnings season starts again and maybe the weather impact is expected to hurt profits, with a lot of pre-announcements from top companies not looking flash. If this is an exaggeration, it could set Wall Street up for another crack at all-time highs, again!
So, no one really knows but the stocks that have had great momentum, that is, hi-tech stocks, have copped it overnight. It’s not an anti-online thing, however, as GrubHub Inc listed on Friday and its stock shot up 50%, which put a value on this restaurant ordering business of $US2 billion!
My conclusion is that this is a reaction to all-time high levels on the S&P 500 and six-year highs on the Nasdaq, with earnings season looming, which means fund managers could be in a profit-taking mood. By the way, the market started in an up mood, so I’m looking at this as another buying opportunity. The depth of this sell off will be determined by how bad, or good, earnings turn out to be.
What I learned this week
Lance Lai’s charts were positive for a change and they even extended to the Shanghai Composite. If our stock market has both Wall Street and the Chinese equity markets working in our favour, it must be a positive sign.
Lance’s analysis backs up Gary Stone’s, which made him go fully invested in stocks for his fund. Even FN Arena’s Rudi Filapek-Vandyck, who can be typically bearish and was so on the iron miners during the week, is positive on BHP and Rio, for at least a year. This means these two big stars, which are in lots of our portfolios, should keep doing the heavy-lifting to help our returns. Remember, materials make up about 18% of the index and that’s why we need the two big miners heading up.
Don’t hang up on Telstra
Adding more momentum to the index’s potential uplift should be Telstra, with Charlie Aitken’s $6 target-call on the stock. His link to a terrible human condition that most of us suffer from — MDA or mobile data addiction — makes the stock even more compelling!
Don’t give up on our economy
Never trust economic data on first blush, as you can often find stuff that negative headline makers rush to. For example, the recent disappointing Australian Performance of Manufacturing Index fell 0.7 to 47.9, which is in the contraction zone being under 50. However, the new orders index rose from 50 to 52.3, which is very good news.
And then there was a 2.4% increase in business loans to a one-year high, which is an important piece of the economic puzzle that has been missing. An improving economy has to help company profits, which, in turn, will help stock prices.
Stocks I like
Macquarie’s marquee stocks this week include Bluescope Steel, Fortescue, FOX, NAB, Goodman Group, AWE, Sumatra Copper and Gold (or SUM). The dollar will eventually fall and these stocks — the Westfield WDC stock, Ansell, Brambles, Amcor, Resmed, Crown and Macquarie — will gain as a consequence because of their overseas exposure.
Tom Elliott thinks NIB could be a takeover target with Medibank Private to go public.
Four stocks for 2014 that keep coming up on my radar screen are CSL, Computershare, Dulux and CSR. The last two are linked to the belief that a housing boom is on the way. Want proof? New home sales were up 4.6% in February and up 29.2% for the year. Kim Hawtrey of BIS Shrapnel has tagged it as a building boom that will replace the mining boom.
Fact of the week
Treasury boss, Martin Parkinson says we have to grow at 5.25% to get rid of our budget deficit and debt problems. That level of growth won’t happen, which means we need a broader and a higher GST. It makes me conclude that we don’t need a horror budget that takes economic growth down rather than up.
May’s budget might hit some Aussies like a horror movie but overall, Treasurer Joe Hockey can’t create a nightmare for the economy, as it will not only hurt job creation, it will hit the stock market as well as business and consumer confidence.
Top stocks – how they fared
Numbers that moved the market
Retail trade was up 0.2 per cent in February and has risen for the past 10 months in a row.
Over in the US, the Institute for Supply Management’s manufacturing index increased to 53.7 in March from 53.2.
The Dallas Federal Reserve services index rose from +9.8 points to +16.5 points in March, which is a huge rise. Texas is a state that did not suffer the weather obstacles and it shows in these numbers.
The week ahead
Australia
April 7 Tourist arrivals
April 7 Job Advertisements
April 8 NAB Business survey
April 9 Housing Finance
April 9 Consumer confidence
April 10 Employment and unemployment
April 11 Lending finance
Overseas
April 7 US Consumer credit
April 9 US Wholesale sales
April 9 Federal Reserve meeting minutes
April 10 US Import & export prices
April 10 US Federal budget
April 10 China Trade
April 11 US Producer prices
April 11 China Consumer and Producer prices
It’s a big week of indicators in Australia next week, with Job Advertisements on Monday letting us know if businesses are looking for employees at the moment. Then we have the NAB business survey and Westpac-Melbourne Institute’s consumer confidence index. Both of these are market movers, so keep an eye on them. Then on Thursday, it’s the big one – employment data. Overseas, the big watch will be China data later in the week, which could have an impact on our stock market.
Calls of the week
Charlie Aitken says Telstra, with mobile data growth a plus for the communications company, is on track for $6!
Joe Hockey has said no to any change in the GST, but with the tax base under pressure, Treasury secretary Martin Parkinson thinks the GST should be applied more broadly to areas such as health care.
The Reserve Bank Board decided to leave rates on hold at 2.5 per cent this week. The central bank also made a few interesting points, noting dwelling prices “have increased significantly over the past year”, and also:
“Some indicators of business conditions and confidence have improved from a year ago and exports are rising. But at the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative, as firms wait for more evidence of improved conditions before committing to expansion plans.”
And in the big call department, NAB will replace retiring CEO Cameron Clyne with Andrew Thorburn.
Food for thought
“Nothing is impossible, the word itself says ‘I’m possible’!” – Audrey Hepburn
Last week’s TV roundup
This week, I spoke with John McGrath to get his view on talk of a housing bubble, as well as the best places to buy right now.
Charts king Lance Lai is still optimistic about the overall strength of the market, at least in the short term.
And Marcel von Pfyffer analyses Japan, China and Europe to see if there are any curveballs we should be worried about.
Plus, I caught up with Paul Rickard to get his insights on short selling.
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 also shows how this has changed compared to the week before. Cabcharge was the big mover up, increasing by 1.81% to 9.03%, while both UGL and Myer saw declines in their short positions:
Source: ASIC
My favourite charts
Check out this chart. It shows just how important a trading partner China has become, outshining Japan and the US.
Top five clicked on stories this week
Charlie Aitken – Telstra on track for $6.00 target
Paul Rickard – Medibank – a healthy IPO
Rudi Filapek-Vandyck – Buy, Sell, Hold – what the brokers say
Ron Bewley – What not to buy
Peter Switzer – Know yourself – know your SMSF
Recent Switzer Super Reports
Thursday, 3 April 2014: On the right track Download
Monday, 31 March 2014: Who do you think you are? Download
