Well, it has been another dramatic week for stocks and yesterday’s 84-point rise on the S&P ASX 200 index might have raised my confidence levels but we only advanced 30 points on the week!
Meanwhile a good unemployment number overnight didn’t help stocks and suggests we’re going to be in for some continued volatility next week (more on that later).
And when I look at the role of oil in recent weeks in spooking stock markets and recognising how I think the negative oil story is not the good oil for stocks, I can only say “oils ain’t oils!”
In case you missed it, I say the short-term impact of lower oil prices on energy companies’ bottom lines will be more than offset by the positive cost and income effects of cheaper fuel.
However for now, it’s been another time to be stressed about the oil price, which plumbed a new low under $US50 a barrel this week, which hasn’t been seen since 2009 – the GFC years, or the Great Recession years as the Yanks call it.
Ahead of Friday’s close, there was a trifecta of positives to push stocks up. The Dow surged on the oil price rising a tad, then there were suggestions that the Fed could restrain from raising rates until 2016 and finally the European Central Bank looked more determined to introduce quantitative easing on January 22.
The latter was drawn from the Chicago Fed President Charles Evans, who thinks it would be crazy for the Fed to move too quickly on rates.
I think he’s right and that’s because what has been spooking markets over the past few weeks – the fall in the oil price – will actually drive inflation down and therefore it gives more breathing room for the US economy and the Fed.
Let’s face it, a central bank only raises interest rates to stop economic growth getting out of hand, which creates too much inflation. But this fall in oil or gasoline or petrol costs is a bonus from left field, meaning the world can enjoy lower interest rates for longer. And God doesn’t the world need that kind of gift?
As I say, it’s my contention that we’re currently preoccupied with the short-term effects of poor old energy companies copping a lower than expected oil price. However, the long run story and implications will be great for individual non-oil exporting economies – that’s most economies! – and generally the global economy.
It should underpin a better year for stocks here and for the world. By the way, when the global economy picks up a gear, guess what else actually goes to a higher level? That’s right, commodity prices. And that’s why a lot of US experts are tipping materials to come good this year. I’m telling the courageous and those who have a speculative component of their portfolio that energy and materials should have a bounce this year. But note you might have to wait more than a year, so be prepared to be patient.
What did I like this week?
- In a letter to European lawmakers, ECB President Mario Draghi said the ECB would reassess its monetary-policy stance early this year, and that ECB moves could include sovereign bond purchases. The big date to watch is January 22 and if he sticks it to his German overlords, we could see stocks really spike.
- Disappointing economic data and especially a weak inflation read for Europe that makes a decent QE program for January 22 more likely.
- Jim O’Neill, the former chairman of Goldman Sachs [1] Asset Management (who first coined the term BRICs for Brazil, Russia, India, China), predicted oil prices will end higher this year. He says the five-year forward price, which is moving up, is more important than the spot price. I hope he’s right.
- The good run of economic data here over the week – consumer confidence above the 2014 average, record car sales and building approvals surging (see below).
- Retail sales rose for the sixth straight month, up by 0.1% in November.
- The ADP employment survey in the US showed that 241,000 private sector jobs were created in December, above forecasts for a 226,000 gain.
- And I loved the US jobs report overnight, with December’s new jobs figure coming in at a big 252,000, while November’s already solid number was revised up to a huge 353,000!
What I didn’t like
- The market’s negative reaction to the great jobs report, with economists blaming the fall in wages, implying low income jobs are being created but I suspect the Paris hostage drama and the strength of the data, with its link to bringing the first interest rate rise closer in the US, could also be spooking the market.
- Our dollar went up to 82 US cents overnight! A lower dollar and low petrol prices are important for my bullish view for 2015.
- Oil went lower overnight as well and that didn’t help stocks.
- Oil prices have now fallen 50% in six months and some experts say there’s more to go! What would be the cause? Try excessive exports from Russia, Iraq and the US – who would have thought these guys could be similar on anything?
- The chart below that shows the slippery slope for oil!
- The Performance of Manufacturing index here fell by 3.2 points to 46.9 in December, reversing two months of gains.
- The Paris hostage drama.
Only in America
I thought Harold Hamm’s wife was the hardest woman in the world to please when she rejected a divorce settlement close to, wait for it, $1 billion! Hamm is the chief executive of oil driller Continental Resources. But as I dug deeper, I learnt his ex-wife, Sue Ann Arnall, who was a former executive at the company and was married to Hamm for 26 years, thought she was owed more, given his net worth is valued at $18 billion!
As I say – only in America!
That reminds me
A woman I know always complained about having a pain in the neck but it went away on Saturdays at 6 pm. When I asked her why, she said that’s when she dropped her husband off at the golf club!
Top stocks – how they fared
[2]The week in review (click the blue text to read more):
- I told you why I’m confident [3] in the US market for 2015 and why I will continue with my mantra to “buy the dips!”
- Our portfolios finished in the black [4] during a tough year – the income-oriented portfolio returned 8.13% for the year and outperformed the market.
- Shortlisted [5] explains why my colleague Paul Rickard still backs Woolworths and why Morgans Australia analyst Simon Bond says Rio Tinto in the resources sector, is one to watch.
- James Dunn gave five resource stocks [6] to bet on in 2015, including the big guns BHP and Rio, as well as Santos and Origin and the more speculative Toro Energy.
- Barrie Dunstan [7] says the start of a new year is a great time to give your portfolio a health check.
- And Tony Negline [8] gave us a case study on why it’s never a good idea to loan money to the in-laws!
What moved the market (click the blue text to read more):
- The falling oil price [9] continued to batter the market this week, with prices slipping below $US50 a barrel.
- Concerns about deflation in Europe also knocked Aussie bond yields [10] mid-week, with the yield on 10-year government bonds falling to 2.65% in Wednesday’s mid-morning trade – its lowest level ever.
- European stocks went higher following a statement [11] by European Central Bank President, Mario Draghi, that the ECB was ready to commence “full-blown” quantitative easing.
- And dwelling approvals [12] rose by 7.5% to record highs in November, after 18,245 approvals were granted (seasonally adjusted) – the highest monthly result since records started in the 1980s.
The week ahead:
Australia
Monday January 12 – Housing finance (November)
Monday January 12 – Credit and debit card lending (November)
Monday January 12 – Job advertisements (December)
Wednesday January 14 – Job vacancies (November)
Wednesday January 14 – Lending finance (November)
Thursday January 15 – Employment/unemployment (December)
Thursday January 15 – Dwelling starts (September quarter)
Overseas
Tuesday January 13 – China Trade (December)
Tuesday January 13 – US Federal Budget (December)
Wednesday January 14 – US Trade prices (December)
Wednesday January 14 – US Retail sales (December)
Thursday January 15 – US Producer prices (December)
Thursday January 15 – US Philadelphia Fed (January)
Friday January 16 – US Consumer prices (December)
Friday January 15 – US Industrial production (December)
Friday January 16 – US Consumer sentiment (January)
Friday January 16 – US Capital flows (November)
Next week kicks off with housing finance data for November and the RBA will also release its data on credit and debit card lending. ANZ will reveal December job advertisement figures which will show us how keen businesses are to take on new recruits in 2015. On Wednesday, the Bureau of Statistics will publish its lending finance figures for November and on Thursday, the Bureau will release its December jobs numbers.
Overseas, there are quite a few economic indicators in the pipeline. Friday in particular has a handful worth watching, including US consumer prices, industrial production, consumer sentiment, and capital flows.
Calls of the week (click the blue text to read more):
- Queensland Premier Campbell Newman called for a snap state election [13] for January 31.
- Australian-based website AirlineRatings.com gave Qantas the top position for global air safety [14], which takes into account Qantas’ fatality free record in the jet era.
- Tony Featherstone placed five IPOs on his watch list [15], including Genworth, iSentia, Monash IVF Group, 3P Learning, and Orion Health Group.
- And CommSec tips the ASX200 in 2015 to end between 5,900-6,200 – with total returns around 15% – I like their thinking!
Food for thought
I do not agree with what you have to say, but I’ll defend to the death your right to say it.
– French writer, Voltaire.
Last week’s TV roundup
Paul Rickard and I talk about giving your SMSF a makeover [16] in the New Year, from checking your contributions, to revamping your investment strategy.
And have you seen our two-part series on finding a blue chip stock? It’s one of my favourite Switzer Super TV sessions from last year.
In our first video [17], we tell you exactly how to scope out a blue chip with specific strategies, and how blue chips can change over the years.
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.
This week one of the biggest movers was Mineral Resources, with its short position increasing by 0.55% to 9.14%. JB Hi-Fi went the other way, with its short position decreasing by 1.50% to 11.40%.
[19]
Source: ASIC
My favourite charts:
Oil price falls below $US50
[20]Source: Nasdaq
Here’s a look at the sharp plummet in the oil price since January 2014, which has now gone below $US 50 a barrel.
Record building approvals
[21]Source: ABS, CommSec
Great economic data – like record high building approvals, which rose 7.5% in November to levels over 18,000 (seasonally adjusted) – will help the economy build momentum in 2015. Data like this reminds me why I think the RBA should leave rates alone!
Top five most clicked on stories
- Peter Switzer – Get ready, get set, get buying! [3]
- James Dunn – Five resource stocks for 2015 [6]
- Paul Rickard – Portolios finish in the black – income portfolio outperforms [4]
- Tony Featherstone – Five IPOs to watch [15]
- Barrie Dunstan – My SMSF – half yearly check-up [7]
Recent Switzer Super Reports
- Thursday, 8 January, 2015: Smart money [22]
- Monday, 5 January, 2015: Happy New Year! [23]