The big event of the investing week had to be the Fed’s FOMC meeting that was expected to announce the end of QE3 – and it happened in case you’ve been out of town. If history could be relied on, you might have thought a sell off was on the cards. But surprise, surprise, the Yanks went positive ahead of the Fed’s statement, with the Dow up over 187 points and the Index breaking back into the 17,000 plus territory. But wait, there was more, with the broader and more important S&P 500 index beating the resistance level I talked about last Saturday of 1966, to finish at a very convincing 1985.05.
That was Tuesday. After the FOMC meeting on Wednesday, the Dow dropped 31 points. By Thursday, it spiked 221 points, though I have to say it was mainly driven by a great earnings result for Visa, which is a major driver of the Dow these days. But the course of the S&P 500 was the real revelation, hitting 1994.65 by Thursday. At the low of the recent sell off, the index hit 1820 and had regained 9.5% since October 15!
I don’t want to be annoying but there’s more, with the Dow hitting an intraday all-time high of 17,350.86 overnight, while the S&P 500 at the time of writing was 2011 – a huge hop. This was aided and abetted by the Bank of Japan, which voted to increase its QE purchasing, tripling its purchases of ETFs and REITs! This had a big impact on Wall Street, as it not only raised expectations for global growth but resulted in a rush for US stocks.
And this was after the Fed ended QE3 and left a message that some economists said means they could raise interest rates in Spring, which, in case you forgot, starts in March in the US. And still stocks headed up! Could you imagine the kind of boom we would have on our hands if Europe had got its QE act together and was starting to show those green shoots (which the doomsday merchants denied were sprouting), when Ben Bernanke was nearing the end of his reign at the Fed?
Back to the S&P 500. Art Cashin, from UBS, (who I’ll interview on the floor of the New York Stock Exchange on December 2 when I take my show to the Big Apple) reckoned the next important level would be 1975. It ended 10 points higher on Tuesday and was 19 points above that by Thursday. But that ended up being nothing to Friday’s effort, where the S&P 500 was flirting with a record close!
So how come?
- Oil beat the fall, staying in the $US80 a barrel area.
- The Russell 2000 index was up above its 50-day moving average for the first time since September 19, which was another bullish sign.
- The four days around the last FOMC meeting are often the best days of the year for stocks!
- It’s also the week before the mid-term election and that’s also historically positive for stocks!
- Fed watchers had high hopes that the central bank’s language would infer that the first interest rate rise in the US would be later rather than sooner. As this didn’t materialise, then it has to be that key investors are believing the US economic recovery story like never before.
In fact, the VISA outlook statement gave support to this optimistic view as well. The Dow’s largest component jumped 11% after topping earnings estimates and saying the mobile payment industry would be a great driver for business. MasterCard also reported strong results, with its shares up 9%. These are nice forward indicators that these two companies have confidence in the US consumer.
And why wouldn’t they, with US GDP up 3.5% against a consensus guess of only 3%. Even more positive for consumers, the latest reading on consumer confidence was a ripper, rising from 86 to a 7-year high of 94.5 in October. Again, this was well above forecasts, which tipped a result of only 87!
What I liked:
- Lucy Ellis, the head of financial stability at the RBA effectively told a Sydney Uni conference that “doomsayers who warned of the sharp rise in debt to income ratios ignored financial liberalisation, inflation targeting and the use of household savings to provide buffers. The current low interest, low inflation, high savings rate environment meant servicing of mortgages today was no more onerous than 10 years ago.” (SMH 29/10/2014)
- Harold Mitchell, the ad guru and Chair of Free TV Australia, telling me that ad spending is on the rise and retailers are in for a huge Christmas. Ad spending is a good indicator for the economy going forward.
- Charlie Aitken showing us that BHP (5.38%), Rio (4.94%) Fortescue (7.91%) and Woodside (7.67%) are decent grossed up yield plays.
- Thomson Reuters telling us that 75.5% of the S&P 500 companies that have reported results have exceeded profit expectations. This is above the longer-term average of 63%.
- Remember, it will be economic data plus company earnings that will push up Wall Street and the US dollar. This will help our dollar slip, which will help our stock market.
- More people buying the story that a lower oil price will be a big, positive shock and shot in the arm for lots of businesses and should propel consumers to start spending like in pre-GFC days. I think we have to see normalcy prevail in economies, such as the US, before stock markets think about giving into gravity on a more dramatic basis.
- The record closes of the Dow and S&P 500 overnight!
What I didn’t like
- The cricket scores for Australia –v- Pakistan and NRL Oz –v- Kiwi result.
- The impact that the surge on Wall Street might have on the greenback, which will take the Oz dollar down, which I like, but it will hurt commodities. How BHP and Rio respond on Monday will be interesting.
My Cup tip?
I feel guilty that I haven’t passed on my tips for the Caulfield Cup and the Cox Plate, which both saluted the judge! They came from experts and that’s why I like to be open to expert advice. Tom Waterhouse’s tip is Fawkner and he did tip Green Moon two years ago on my TV show at better than 20/1 and then Fiorente last year. Being an online bookie, I guess he sees the money roll in.
For me, I like the Japanese horse Admire Rakti and the local Lucia Valentina but the barrier draw could change all that. I’ll give my final word on Monday and will consult Westpac’s chief economist Bill Evans, who’s also a good form student of the track.
I should add I’m more interested in our stock market racing along as it is at present, than the good old four-legged lottery.
Go they’re racing!
Top stocks – how they fared
The week in review (click the blue text to read more):
- This week, I gave you the 10 tenets you need to know [1] to invest ahead.
- Ardent Leisure, Village Roadshow, Amalgamated Holdings and Super Retail Group are leisure stocks James Dunn thinks are worth watching [2].
- Sundance Energy is a shale oil/gas producer that fund manager Ben Griffiths has a big wrap for [3].
- The brokers upgraded AGL and AMP [4], but downgraded G8 Education. There were mixed feelings [5] on JB Hi-Fi.
- BHP and Woodside look cheap [6], with their dividend yields likely to provide a floor to any share price weakness, says Charlie Aitken.
- Stand out ethical investing funds like Perpetual Wholesale are on Tony Featherstone’s radar [7].
- And the ATO has a broad range of powers over SMSFs – Tony Negline explained the penalties you need to know about [8].
What moved the market (click the blue text to read more):
- A rise in US consumer confidence [9] to 94.5 in October, from 89.0 in September. US GDP [10] also brought the goods, increasing at an annual rate of 3.5% in the third quarter.
- The US Fed announced the end of QE III [11], but reaffirmed interest rates will be kept near-zero for a considerable time.
- And the ANZ–Roy Morgan consumer confidence [12] reading hit a 12-week high of 114.6 in the week to October 26.
The week ahead:
Australia
Monday November 3 – RP Data Home Price Index (October)
Monday November 3 – Monthly inflation gauge (October)
Monday November 3 – Job advertisements (October)
Monday November 3 – Building approvals (September)
Tuesday November 4 – International trade (September)
Tuesday November 4 – Retail trade (September)
Tuesday November 4 – Reserve Bank Board meeting
Thursday November 6 – Employment/unemployment (October)
Friday November 7 – Statement on Monetary Policy
Overseas
Monday November 3 – US ISM manufacturing (October)
Monday November 3 – China purchasing managers (October)
Tuesday November 4 – US Trade balance (September)
Tuesday November 4 – US Factory orders (September)
Wednesday November 5 – US ADP employment (October)
Thursday November 6 – US ISM services (October)
Friday November 7 – US Non-farm payrolls (October)
Saturday November 8 – China trade data (October)
It’s a bustling week ahead with top economic indicators like the monthly inflation gauge, job ads, and building approvals released at the top of the week. On Tuesday, the Reserve Board meets, but the focus will be on making a dollar on your Melbourne Cup punt! On Thursday, October employment data is released and the RBA is back on Friday to issue its quarterly Statement on Monetary Policy.
The US also has a bucket load of data out next week, but the most important one is arguably US employment stats released in the ADP national employment index on Wednesday, and in Friday’s non-farm payrolls.
Calls of the week (click the blue text to read more):
- Charlie Aitken said some of the big, low cost, long duration resource stocks are now finding yield support, and he tips Woodside as a certainty [13]!
- My colleague Paul Rickard said investors are being misled with the Medibank IPOs [14] – he says the forecast yield for FY 15 is between 3.5% and 4.5% rather than the publicised range of 4.2% and 5.4%. It’s a low yielder!
- And in a bid to build accountability and foster revenue growth, new NAB CEO Andrew Thorburn [15] dampened his employees’ festive spirits after saying that bonuses will be the lowest they have been for some time!
Food for thought
Success is not final, failure is not fatal: it is the courage to continue that counts.
– Winston Churchill – former British Prime Minister.
Last week’s TV roundup
- The great Harold Mitchell [16], Chairman of Free TV Australia, explained what is going on with Australian media companies and all this merger talk!
- Switzer Super Report expert Charlie Aitken told us why he likes some of the big miners [17].
- In this Super Sessions update, Paul Rickard summarises the pros and cons [18] of the Medibank share price offer and what it means for you.
- How can hybrid securities [19] fit into your portfolio, but for starters, what in the heck are they? Paul Rickard shares his knowledge on these complex investing instruments.
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.
Sims Metal was one of the biggest movers this week – short positions increased by 0.48% to 7.46% of all shares outstanding.
Source: ASIC
My favourite charts:
Consumer confidence hits 12-week high
Source: ANZ/Roy Morgan Research
Consumer confidence levels lifted 2.7% to 114.6 and is moving at a four-weekly average of 113.2! The monthly average since 1990 stands at 112.8.
S&P500 could be in for an upswing!
Source: Beyond Charts
Gary Stone stressed that a long–term up trend is definitely in place for the S&P 500. You can read his expert technical analysis in his article here. [20]
Top five most clicked on stories
- Peter Switzer – 10 tenets you have to know to invest ahead [1]
- James Dunn – Four fun stocks to get serious about [2]
- Paul Rickard – Medibank is no bonanza – though I will be investing [21]
- Rudi Filapek-Vandyck – Buy, Sell, Hold – what the brokers say [4]
- Charlie Aitken – The way to play WA [6]
Recent Switzer Super Reports
- Thursday, 30 October, 2014: QE3 is dead! [22]
- Monday, 27 October, 2014: Take a breather [23]
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.