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Whew! How good was that? The market performance on Friday’s 133.9 points surge, taking the S&P/ASX 200 index to 5877.5, was deserving of an Al Pacino-style “Ooah!” It was a contrast to the rest of the week, with four down days (though they were mild) and unconvincing sell offs, so we added about 1% for the trading week.
What explains this great day for stock market bulls like yours truly? Well, in a technical sense, the big four banks and two miners (BHP and Rio) were being chased and these six stocks have a big impact on the index.
Putting it in order, Rio’s pretty positive report (late Thursday afternoon) helped get the bulls’ ball rolling. Then the oil price continued to sneak up into the $US50s, defying forecasts from the likes of Citi that see it in the $US20s! Gotta hope they’re wrong as I suspect it would coincide with a crushed global economy rather than a world swimming in over-supplied oil!
Helping stock investors part with their money to get part of the action on the ASX was reporting season, which hasn’t been as disappointing as was tipped. It’s still a work in progress show-and-tell affair but it’s like we’re seeing another version of Wayne Swan’s “patchwork economy”, with mining now going off the boil and some other sectors coming good, such as housing. Housing prices, building approvals and housing starts are at very elevated levels on an historical basis. Even within retail last week we saw ‘electricals’ on the rise, probably thanks to a falling dollar.
To be precise and to show some of the creeping improvements (which I think get better over the year as the dollar keeps falling), have a look at these observations from last week’s retail numbers:
- Electrical, electronic & gas goods retailing (up 10.6%, the strongest result in 14 years);
- Footwear and other personal accessory retailing (up 5.9%, the strongest result in two years); and
- Liquor retailing (up 2.6%, the strongest result in three years).
These CommSec revelations probably give us a clue on how some industries and businesses will gradually get better after a five or six post-GFC years of being in the doldrums due to confidence fears, too high interest rates and a damn dollar stuck in over-valuation mode.
That was then, this is now. The ‘this’ is changing before our eyes and partly explains why, at long last, our stock market is playing catch up. Most of what I was praying for last year to push the market up and to justify my optimism is now happening.
It can be put into an equation, which would look like this:
US economic recovery confirmed + ECB’s QE program + RBA rate cuts + lower petrol prices + a lower Aussie dollar = Stock market up!
Last year I also prayed for comrade Putin to come to his senses. While that might be impossible, he is talking peace, which looks a chance – that’s a plus for Europe and the global economy.
But all this had simply set the scene for a bit of central banker titillation, with our RBA boss, Glenn Stevens, starring at the Parliamentary ‘grilling’ of our monetary policy czar in Canberra on Friday. Mr Stevens said a lot of things that grabbed headlines, such as “unemployment goes up before it goes down” (my words not his but they’re a good summary). However, the huge take out market message was that a March interest rate cut is highly possible.
After all this positivity, it must be time for what I liked this week.
The likes
- CBA’s 8% jump in cash profit to $4.6 billion and a share price at $93.15! (We’ve never not backed the big banks but we could soon take some profit.)
- Trends suggesting the lower dollar is now attracting foreigners back to Aussie stocks, despite tips from the likes of Charlie Aitken that we could be travelling with a 60-something US cents Aussie dollar this year!
- The Telstra result and my interview with CFO Andy Penn, who some say could be David Thodey’s replacement. He looks like a safe pair of hands and makes a $7 Telstra look more believable.
- The Westpac consumer sentiment read – that big spike up 8% showed what a rate cut can do. Another soon could reinforce the overdue positivity.
- The money market bet on a March rate cut has gone from a 34% chance to 70%! Gotta like that, provided you’re not a term deposit player. That said, the only way term deposits get up to 4-5% is to see our economic growth get into the 3-4% region. So it’s two steps back for three forward.
- Interviewing Domino’s CEO Don Meij after his 44.2% surge in net profit to $29.1 million, which took his share price up close to 27% at $34.30! I’ve been a supporter of Don and the business but he even confounds me with his innovations and growth in places like Japan and France. He says he has two more innovations in store this year and reminded me that France is the second biggest pizza market in the world! (My interview with him is worth a watch on www.switzer.com.au [1])
- Thompson Reuters says that 76% of S&P 500 companies have reported earnings, with 71.4% topping earnings expectations, which helps to explain why the US market averages have had their best two weeks since October, before the oil price slide.
The dislikes
- The unemployment number going from 6.1% to 6.4% and trying to work out why, when we lost 12,000 or so jobs in January and the participation rate didn’t change. In December, we created 43,000 jobs and the jobless rate fell from 6.3% to 6.1%. That ‘screwiness’ needs to be explained by statisticians, whose work has been questioned over 2014. Have they changed calculators or medication?
- The unemployment headlines screaming “Worst in 12 years!”. Even I don’t like writing those words and I’m starting a campaign to encourage the non-usage of the n-word. I’m replacing ‘n’ with ‘un-positive’, just to keep everything positive. I hope it rubs off on Treasurer Joe Hockey, who needs to get addicted to more positive rhetoric.
- The continual harping on about our government debt problem. It has increased but it’s small by international comparison. Given that the Senate – Labor, the Greens and the PUPs – won’t listen or change their point of view, the Abbott Government needs to do what it can to get economic growth up. Talking about daily millions of dollars of interest bills because of Labor and our ‘good’ Senators is typical politics but it’s spooking business and consumers.
- The NAB business survey with business confidence up from only +2 to +3, while business conditions are stuck on +2.
- The Greeks debt negotiations as they remain a loose canon, curve ball pain-in-the-neck for investors wanting to see stocks go higher. Pray for good sense to prevail, if only for money purposes!
The big like of the week
Of course I loved Friday’s stock market spike but we need to see something big happen to give stocks a foundation to keep building. This could be:
“Germany’s GDP number grew more than expected in the fourth quarter, expanding by 0.7% quarter-on-quarter, which bolstered hopes that the Euro zone’s largest economy is back on track.” (CNBC)
And I love a headline like this: “DAX hits all-time high!” Germany is pivotal to the Euro zone and is important to a global recovery, which will drive stocks.
Go Germany!
Relevant joke
An economist went for a job at the ABS. He was asked a whole pile of simple questions and the last one was: “What’s 20 plus 17?” He was so miffed at the silliness he answered: “34.” A few weeks later he was offered the job. When he went in to accept, he asked his would-be manager why he got the job after getting that addition wrong. His manager replied: “Yes, you got it wrong but you were the closest to the right answer!”
Top stocks – how they fared
[2]The week in review (click the blue text to read more):
- I explained if you can really trust the stock market rally as a sign for things to come [3] in 2015.
- Paul Rickard [4] said there’s no fizz in ANZ’s new hybrid, ANZ Capital Notes 3. If you want to invest, he suggests keeping some powder dry!
- This week, brokers upgraded [5] Japara Healthcare and Macquarie Group and Boral received a downgrade. In our second broker report [6] for the week, REA received an upgrade and BWP was downgraded.
- Penny Pryor [7] gave us the best term deposit rates in this low rate environment – ME Bank was a standout but the big four offer some good rates too.
- Charlie Aitken upgraded his ASX200 trading range forecast to 5550 – 6000 and gave us a loud and clear message [8] – DON’T TAKE PROFITS!
- Macquarie Atlas Roads [9] is one of a kind according to this week’s fundie, Paul Kasian.
- Tony Negline [10] gave us an example of a recent court case that shows why you should keep track of your super even if you have no interests in your partner’s SMSF.
What moved the market (click the blue text to read more)
- Official jobless rate figures [11] were a killjoy to our market this week after coming in at 6.4% in January, up from 6.1% in December. The participation rate remained stable at 64.8%.
- Wall Street rallied mid-week [12], with tech-monolith Apple reaching all-time highs, and positive earnings reports from companies such as Coca-Cola.
- And the leaders of Germany, France, Russia and Ukraine agreed to a ceasefire deal [13] to end fighting in eastern Ukraine at the Minsk summit, sending US and European shares higher.
The week ahead:
Australia
Monday February 16 – New motor vehicle sales (January)
Tuesday February 17 – Reserve Bank Board Minutes
Tuesday February 17 – Imports of goods (January)
Thursday February 19 – Detailed jobs data (January)
Overseas
Tuesday February 17 – China house prices (January)
Tuesday February 17 – US Capital flows (December)
Tuesday February 17 – US Housing market index (February)
Wednesday February 18 – US Federal Reserve Minutes
Wednesday February 18 – US Housing starts (January)
Wednesday February 18 – US Producer prices (January)
Wednesday February 18 – US Industrial production (January)
Thursday February 19 – US Leading index (January)
Friday February 20 – US Flash manufacturing (February)
There’s not much on the local agenda next week, but there’s still a few important ones to note, including the release of the latest Reserve Bank Board meeting minutes on Tuesday. On Thursday, the ABS also reveals detailed jobs figures for the month of January.
It’s a different story overseas, with a substantial dose of US data in the pipeline. First up is the monthly capital flows data out Tuesday. Investors will also be paying close attention to the Federal Reserve minutes on Wednesday for hints on rate hikes, and on Thursday, to the US Leading Index.
Calls of the week (click the blue text to read more):
- PM Tony Abbott remains in the top job after Liberal Parliamentarians voted 61-39 against the spill motion on Monday morning.
- It was a big call for the ABC to take radio broadcaster Alan Jones on the Q&A panel [14] – and Jones was a hit with the audience!
- For the first time ever, Australia has been given a wild-card entry into the Eurovision Song Contest [15] for its 60th anniversary in 2015!
- And my colleague Paul Rickard [16] says that there is a good chance that we’ll see CommBank shares hit $100 by year’s end.
Food for thought
Intelligence is the ability to adapt to change
– Stephen Hawking, English Physicist
Last week’s TV roundup
- Domino’s head chef Don Meij continued to cook up a corporate storm with an outstanding earnings report. So what’s behind this success story, and what other plans does Meij have up his sleeve? Find out [17] on Super TV.
- Our market has had a stellar run, but what will help it continue to move higher? My colleague Paul Rickard and I explain how a strong earnings season [18] is essential for boosting market momentum.
- Rudi Filapek-Vandyck [19] and I have been debating whether BHP and Rio are viable investments for 2015, and we continue our debate with Rio reporting slightly better than expected results. I also ask him how long we can keep chasing dividend stocks!
- Paul also joined me on my show this week to tell us if this income stock play [20] has plenty of legs left.
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 The Reject Shop – its short position increased by a 1.25% to 9.57%. Another big mover was Metcash, with its short position increasing by 1.01% to 15.12%. UGL saw its short position reduce by 1.89%.
[21]Source: ASIC
My favourite charts:
Credit card Christmas!
[22]
Source: CommSec, RBA
There’s no question that Aussies know how to use a credit card during the Christmas period – so well in fact that we used them nearly 14 times on average in December to make purchases!
Top five most clicked on stories
- Charlie Aitken: ASX/S&P 200 in 5550 – 6000 trading range and more high-conviction stock picks [8]
- Peter Switzer: Can you really trust this rally? [3]
- James Dunn: Earnings season preview – Rio, CBA and Telstra [23]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [5]
- Paul Rickard: No fizz with ANZ’s new hybrid [4]
Recent Switzer Super Reports
- Thursday, 12 February, 2015: Mary, Mary, quite contrary [24]
- Monday, 9 February, 2015: Long live the king? [25]
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.