What did I say?
Last Saturday, with momentum stocks such as Twitter and Netflix being given a right bollocking in the US, this is what I said: “I’m not panicking. I’m waiting for some lower lows next week and watching stocks I want to hold that pay dividends, which could be dumped by short-term players, who can provide opportunities for longer term investors.”
And I wasn’t alone, with smart investors in the US playing the same game. So, believe it or not, the S&P 500 index actually had its best week since July last year!
The index was up 2.7%, the Dow up 2.4% and even the Nasdaq put on 2.4%, showing the index is not all tech-stocks. Tech stocks might be significant in the index but the majority isn’t hi-tech.
Why? You might ask. It’s simple — the old E&E, which stands for economics and earnings. And on top of that, we’re not in crash territory. More on that later.
Wall St ignores tech trashing. Que?
So, how did stocks defy gravity this week, with all the fears around over-bought tech stocks? Try this:
- GE is historically a bellwether stock for the US economy but it’s also very internationally oriented and it beat expectations.
- Morgan Stanley, run by Aussie James Gorman, also beat expectations and so did Goldman Sachs, despite an 11% drop in profit.
- Earnings were expected to be disappointing but with a little under 100 S&P 500 companies having reported, Thomson Reuters says around 63% have exceeded expectations. In the previous four quarters, that number has averaged 56% and even revenue figures were close on the average of the past four quarters.
- The Chinese economy grew at 7.4% annualised in the March quarter, which was ahead of forecasts, although lower than 7.7% annual growth rate in the December quarter. The next three quarters historically are stronger, so this result was miles better than those Doomsday merchants who were talking 5-6% growth.
- Industrial production rose by 0.7% in March in the US, which was above expectations, for a gain of 0.5%.
- We started the week with “Brink of War” headlines but ended with dispute resolution talks in Geneva, which were promising, at least on Thursday when Wall St closed.
Ignore rash trash crash talk
Regular readers know I could see a May-connected correction because history often delivers it but it will only be a buying opportunity because I think this bull market has time to run.
One day, Marc Faber, Jeremy Grantham, Harry Dent, etc. will be right but if you call a crash nearly every year, one will eventually happen!
Shares are not expensive and they usually are when a crash comes. Our market P/E is 14.4 and our long-term average is 14.1. The Yanks are at 15.1 and their long-term average is 15.9. Nasdaq’s P/E is a third of what it was when it crashed in 2001 with the dotcom bust.
What I liked this week
This is from AMP’s Shane Oliver: “At present, we are likely in Phase 2 — some optimism regarding the economic outlook and share markets have returned but we don’t see signs of euphoria that becomes evident in Phase 3 as precursors to a new bear market.”
Go Shane!
Dick Smith reporting better than expected. A few weeks ago, I had dinner with the company’s CEO, Nick Abboud, and he impressed me. The company reported a lift in sales of 1% for the March quarter, which might augur well for the likes of JB Hi-Fi or it could say something about Abboud’s strategy.
My interview with “Master” of The Apprentice, Mark Bouris. If you missed it, go to www.switzer.com.au.
The week ahead
On Wednesday, I interview freelancer.com’s Matt Barrie. His take on the recent sell-off and his company’s future should be eye opening.
U-CAC
The Barry O’Farrell short-term memory problem in the past week (wine can do that) took me back in time. In fact, it was 26 years ago when I was Triple M’s business and political commentator. I used to do a Friday morning look back at the week called The Big Game. It was set to the music of Shaft because I was effectively shafting anyone who seemed to be having a lend of us.
It was well regarded and I was twice runner up in the radio industry awards (called The Rawards), beaten by Alan Jones. But I did tie one year with someone called Neil Mitchell – I wonder what happened to him? (Just joking!)
But why is all this relevant to the week in investing? Well, Barry’s exit from the NSW Premier’s job was tragic but you just can’t be caught out lying in this political caper and you definitely can’t do it at ICAC. The Independent Commission Against Corruption was set up by Nick Greiner and it virtually took away his job with one of its early inquiries (though a court later exonerated him).
I recall in one of my Big Games on the Greiner grilling that I observed: if you’re called by ICAC, U-CAC!
So, what about the investing link? This sad story distracted us from the Badgery’s Creek airport decision, the NAB March Quarter Business Survey that went positive for the first time in 18 months and dwelling starts are kicking butt big time. Dwelling starts rose 8.2% in the December quarter to 44,729. Starts in 2013 were 168,267 and this was the highest calendar year result in three years and well above both 5-year and 10-year averages!
Our economy is turning the corner and this will feed into earnings and then share prices.
Top Stocks – how they fared
Numbers that moved the market
Borrowers should not fear – the Reserve Bank Board minutes gave the ‘smooth sailing’ signal to interest rates. So for the time being, you can expect a fairly stable tune for these rates, well, at least until we receive some assuring news about our economy. In regards to the labour market, we might see unemployment edge higher for a little while longer, but the minutes assure us there will be “modest improvement in prospects for employment.” You can read all about it here.
Overseas, the US economy has seen some clearing skies after their financially foggy winter. The Federal Reserve’s Beige Book for April showed economic activity increased for ten of the 12 regions surveyed. Also, US retail sales recorded their biggest increase in 18 months.
The Week Ahead
Australia
April 23 – Consumer Price Index (March Quarter)
April 23 – Internet Vacancy Index (March)
Overseas
21 April – US National activity index (March)
21 April – US Leading index (March)
22 April – Existing home sales (March)
22 April – US Richmond Fed index (April)
22 April – US Monthly home prices (February)
23 April – US New home sales (March)
23 April – “Flash” manufacturing – China, US & Europe (April)
24 April – US Durable goods (March)
25 April – Consumer sentiment (April)
Post the Easter long weekend, it’s going to be a slow week in the world of finance. Things will pick up on Wednesday however, with the Consumer Price Index (March quarter) released.
Internationally, things are much more vibrant. We will see the US National activity index for March on Monday 21 , as well as the US Leading index. On Wednesday, China, the USA and Europe will release their “flash” purchasing managers’ gauges. The US housing market will also be in the spotlight, with existing home sales released on Tuesday the 22nd.
Calls of the Week
A red faced Barry O’Farrell, regarding the cause of demise of his NSW Premier status: “I still don’t know what happened to that bottle of wine.”
Paul Rickard flies the SMSF flag to the Murray inquiry, addressing all those sticky employment tests and conditions making life difficult for super holders everywhere. He says, “you are never too old for super!”
Food for thought
Formal education will make you a living; self-education will make you a fortune” – Jim Rohn.
Last week’s TV roundup
With some unusual movements on the market of late, I caught up with Paul Rickard to find out why high-tech stocks are being sold off, and why Coke is being brought down with them.
Also this week, we just had to ask, with all this Treasury trash talk about superannuation changes, just what are the likely outcomes of the May 13 budget? Paul Rickard gave his insights on the budget and our current market this week on Super TV.
Ron Bewley from Woodhall Investment Research also caught up with me, albeit with a slight change in his normal tune, to discuss a Sydney residential property price plateaux. He also gave his expert market forecasts for 2014.
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.
M2 Group shot into the top stocks chart this week with their short position opening by a massive 2.26% in 6 days! Other noticeable movers were Myer Holdings and Treasury Wine Estate.
Source: ASIC
My favourite charts
Paul Rickard tells us why CBA is solid winner, and challenges us to find a corporate bond or infrastructure asset with a more sterling income profile over the years!
Top five clicked stories of the week
- Charlie Aitken: High Flyers to Fall, Rotate into Mega Caps
- Rudi Filapek-Vandyk: Buy, Sell, Hold – What the brokers say
- Penny Pryor :Shortlisted – Resmed, Coca Cola and Mega Caps
- Peter Switzer: Nasdaq Free Fall – How worried should you be?
- Ron Bewley: The best of iron ore stocks
Last week’s Switzer Super Reports
Monday 14 April, 2014: Too much time in the sun
Thursday, 10 April, 2014: Better the devil you don’t know
Have a great Easter weekend!
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