[table “78” not found /]
I want to put the recent week of market movements into perspective so let’s start with some insightful charts. The first shows what has happened over the past year.
[1]We’ve gone from 5400 to 5700 on average, which is a return of 5.5%. If we throw in a low 4% for dividends (if your portfolio is as good as the index), you’ve made 9.5%. As term deposits are lucky to be 3%, you’ve done OK playing stocks.
Now let’s take a longer view and see what might have happened if you were in stocks since, say, 1993. The chart below tells the longer-term tale and it’s not a tale of woe. Roughly, the index has gone from 1500 to 6700, a rise of 4200 and a return of 280%! As history shows that dividends deliver about half of all returns on stocks, it suggests you could have made over 500% being in a good quality portfolio.
What I like about the chart below, over a longer period, is that it shows that stocks rise at an average rate of about 30 degrees. If you draw an imaginary line from left to right on this chart, you can see it but there are breakouts above and below this imaginary line. When the breakout above the line goes on for a while, a crash happens and overshooting happens until that average ascending line reasserts itself.
Note right now that we’re not above this imaginary line. In fact, we’re just about on it and that’s why I’m not worried about being in stocks.
[2]I’ve guessed 30 degrees and think this protractor confirms it as an OK guess.
[3]Away from geometry, this week I have been positively charged by many of the revelations that have grabbed my eye.
What I liked
- The general positive reaction to the Budget and the fact that business is thinking outside the square about the $20,000 immediate tax write-off. Solar panel businesses are getting inquiries from small businesses that own premises and see possible cost reductions on their energy bills. When I interviewed Joe Hockey this week for my Sky TV program, he admitted he hadn’t thought of that possible implication of his decision but was happy to see it.
- The Treasurer looking on top of his brief – confidence slid last year because his Budget not only failed to beat the Senate, it didn’t offer optimism to business or consumers.
- Consumer confidence is now above the long-term average and rose by 6.4% in April to 102.4 – a 16-month high. The increase in May was the largest increase for a May month (post Federal Budget) since 2007!
- Better still, the biggest rise in confidence was for the big spending 25-44 year demographic, where the index was at 106, up a huge 16.3%!
- Fed boss Janet Yellen saying overnight that if the US economy improves, interest rates would rise, which would be good for the Oz dollar, taking it lower. It would help our stock market.
- It was good to see Yellen talk about a small rise in inflation, which increases the chances of a rate rise. The market didn’t panic, with only a small sell off, while the Nasdaq ended just a tick in the negative, after being positive most of the day.
- The Carl Icahn story. He made a fortune punting on Apple. How much? Try $3.4 billion! With the stock now at $130, he still thinks it’s heading to $240! When he bought into Apple, he tweeted it and others followed him in. He’s worth following but I wonder what regulators think of his potential power.
- The US leading index rose by 0.7% in April, against a forecast of 0.3%.
- US housing starts surged by 20.2% in April to a seasonally adjusted pace of 1.14 million units – the highest since November 2007. Building permits also jumped by 10.1% in April to hold at their highest levels since June 2008. It sounds like solid economic recovery news, doesn’t it?
- The French flash manufacturing index rose from 50.6 to 51.0 in April – any number over 50 means expansion. While the German index fell from 54.1 to 52.8, it’s still heading up. QE in Europe has to produce positive economic data, so these reads are good news.
- US market indexes are still in all-time high territory.
- Aussie/Greek finance minister, Yanis Varoufakis said on Monday his government was “very close to an agreement” with creditors, which may occur “maybe in a week.” One less curve ball is a plus for stock markets!
- The RBA setting the market straight that, if needed, rates would be cut.
What I didn’t like
- News outlets not making front-page headlines out of the big bounce-back for consumer confidence. (I’m reintroducing my Good News Daily section on www.switzer.com.au [4] just to let people know there is better news out there than Tony Abbott saying “Nope, nope, nope…” and anything else that distracts us from the possibility that our economy could be better than naysayers think.
- Our stock market this week and a picture paints a thousand words:
[5] - We need some really good news like a sliding dollar, better company profits or another cut in rates – it could be all of this and something else that markets generally need, i.e. time.
Moneymaking fact of the week
TD Ameritrade data on the age-divided equity asset allocations of its 6.3 million retail clients found that “Millennials are addicted to Facebook; Boomers love GE; and recent grads worship Buffett. Most of all, everybody loves Apple!” (CNBC). Given what Icahn said about his target price, it gets you thinking doesn’t it, especially when the US market eventually has a correction.
Pic of the week
The Treasurer came to our Switzer offices this week and was a big hit with our staff – even the lefties wanted to get selfies with him! Ah, the power of politics.
[6]Top stocks – how they fared
[table “77” not found /]*Result excludes benefits from South 32
The week in review
(click the blue text to read more):
- I told you why Joe’s Viagra Budget will help stocks [7] like the Vanguard Australian Shares Index (ETF), CSL, Macquarie and CBA.
- Paul Rickard explained everything you need to know [8] for a sector update.
- James Dunn shared five remarkable REITs [9], including APDC Group, Bunnings Warehouse Property Trust, Generation Healthcare REIT, Hotel Property Investments and Rural Funds Group.
- Tony Featherstone gave you three arguments [10] for buying the BHP spin-off, South 32.
- Ron Bewley says it’s time to pounce on the financial sector [11] with a yield back above 5% (excluding franking credits) and a forecast capital gain over the next 12 months of 9%.
- Charlie Aitken says we should consider oversold banks and fund managers [12] like AMP, Platinum and Magellan on the back of a non-negative budget.
- This week, the brokers upgraded ALS, GUD Holdings and M2 Telecommunications [13], while Fantastic Holdings and Fortescue Metals Group received downgrades. In our second edition of the week [14], the brokers upgraded Bendigo Bank and Westpac along with Seek and Oil Search.
- Our Super Stock Selectors [15] liked Iress and Dulux this week, while Westpac and Orica were on the ‘dislikes’ list.
- The three stocks Geoff Wilson tipped back in January [16] – IPH, Mantra and Future Generation Company – are now up by an average 26% each!
- And Tony Negline weighed up the pros and cons [17] of taking a pension versus lump sum payments.
What moved the market:
- The Reserve Bank Board minutes [18] confirmed further rate cuts remain on the table.
- The latest US FOMC minutes [19] suggested a rate increase isn’t completely off the cards, but the first rise is unlikely to happen in June.
- And Chinese manufacturing figures [20], after missing analysts’ expectations, boosted the prospect of further stimulus measures in the world’s second largest economy.
The week ahead:
Australia
- Wednesday May 27 – Construction work done (March Quarter)
- Wednesday May 27 – Speech by Reserve Bank Deputy Governor, Philip Lowe
- Thursday May 28 – Business investment (March Quarter)
- Friday May 29 – New home sales (April)
- Friday May 29 – Private sector credit (April)
Overseas
- Tuesday May 26 – US Durable goods orders (April)
- Tuesday May 26 – US Home prices (March)
- Tuesday May 26 – US Consumer confidence (May)
- Tuesday May 26 – US New home sales (April)
- Tuesday May 26 – US Richmond Fed survey (May)
- Thursday May 28 – US Pending home sales (April)
- Friday May 29 – US Economic growth (March Qtr)
- Friday May 29 – US Consumer sentiment (May)
Next week, the biggest local economic release is on Thursday with the key measure of business spending and investment. Investors will also be looking to construction work done during the March quarter and a speech by the Reserve Bank Deputy Governor, Philip Lowe, on Wednesday. On Friday, the RBA releases their Financial Aggregates publication, which includes private sector credit figures, or loans outstanding.
While it is a holiday in the US on Monday (Memorial Day), there is a bit more going on, with the key measure of business investment – data on durable goods orders – one of many economic releases pencilled in for Tuesday. On Friday, there are two important indicators, including the preliminary estimate of economic growth for the March quarter and US consumer sentiment for May.
Calls of the week
(click the blue text to read more):
- The Federal Government caved into pressure from the mining industry and abandoned an inquiry into the iron ore sector ‘’at this time’’. However, my colleague Paul Rickard is backing calls for an inquiry and says it’s in our national interest. You can read his article here [21].
- Domino’s announced plans to hire an extra 3,000 people for delivery services [22] in Australia and New Zealand over the next six months, in response to an anticipated spike in popularity after it rolls out its GPS driver tracker technology that will let you follow your pizza right to your doorstep!
- US talk show host David Letterman called it a night on the Late Show after 33 years and interviewing nearly 20,000 guests. You can see some of the highlights from his final show here [23].
- And Switzer contributor David Speers made the call that there will be no election this year because there’s just no mood for it within the senior ranks of the liberal party! Read his full analysis here [24].
Food for thought
Learning never exhausts the mind
– Leonardo da Vinci – Italian artist
Last week’s TV roundup
- He’s considered one of the best fund managers in the country, so how is Anton Tagliaferro of Investors Mutual playing the market right now? He shared his insights on Super TV [25].
- Ron Bewley of Woodhall Investment Research gave his forecasts for the local share market [26], and it’s looking good!
- After their recent performance on the share market, Bell Direct’s Julia Lee told us whether we should keep the faith in banks and go long [27]!
- And in case you missed it, you can catch up on my interview with Treasurer Joe Hockey [28]. We talked about the recent Budget and the future of the Australian economy.
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, the biggest mover was MMA Offshore, with its short position increasing by 0.64% to 12.15%. This was closely followed by Myer Holdings, with a short position increase of 0.57% to 20.70%.
[29]Source: ASIC
My favourite charts:
Consumer confidence – it’s huge news!
[30]
Looks like Joe’s Viagra Budget provided some stimulation right where we needed it – consumer confidence lifted by 6.4% in April to 102.4 – and that increase was the largest in a post-Budget month in eight years!
Tasty, tasty banks
[31]With his exuberance measure, which calculates the mispricing of sectors, SSR expert Ron Bewley illustrates how we’re in a buying opportunity for the financial sector, which is looking cheap at this point in time. And with a forecast capital gain over the next 12 months of 9%, the financials do look appetising!
Top 5 most clicked on stories
Peter Switzer: Joe’s Viagra Budget will help these stocks [7]
Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [13]
Charlie Aitken: Non-negative Budget, consider oversold blue chips [12]
Charlie Aitken: Don’t miss out on the Chinese bull market [32]
Tony Featherstone: 3 arguments for buying South32 [10]
Recent Switzer Super Reports
- Thursday, 21 May, 2015: Time to pounce [33]
- Monday, 18 May, 2015: Growth in all the right places [34]
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.