[table “107” not found /]
What was that? We went from a $60 billion wipeout of market value on Monday to finish the week actually up 0.9%! On Friday, the momentum carried through, with the S&P/ASX 200 index up 0.6%. And Harvey Norman reported a 26.6% increase in profit, raising its dividend from 9 to 11 cents, yet Gerry’s share price was down 10 cents to $4.42! I have to say he was a little bewildered about that when I interviewed him yesterday!
On the other hand, Woolworths went up 35 cents (or 1.29%) on Friday, despite a 12.5% slide in full-year profit, which hasn’t happened in 19 years! Figure that out!
Meanwhile, Telstra lost 1.4% for the day to end at $5.82 and was cropped 4.1% for the week amid news it’s in talks to become a joint-venture partner with San Miguel, a Philippines mobile provider that could be worth hundreds of millions of dollars.
I’m still scratching my head on why the telco is so unpopular right now. That will be a job for my TV program in the week ahead.
So what was last week all about? One word – volatility. I warned about volatility months ago and it will be here until all the news is unquestionably all good or all bad.
At the start of the week, it looked like we were heading for bad news, with weak Chinese manufacturing news leading to fears about global growth, just when there were doubts about US growth following some Fed minutes. This was thought to mean the first US interest rate rise would come later but there were still some experts who thought September’s rate rise was still on the cards, so some analysts think some of this week’s early sell off was about the first rate rise!
This pseudo-psychology market stuff is complicated, especially when you throw in the Korean war threat games, the Greeks with their attention deficit deprivation problem, which manifested itself as a snap election. Then throw in the media frenzy about upcoming recessions linked to all this market madness and it’s out of control.
The 0.9% rise in the market confirms my general argument that I have been prosecuting for some time – we are in a slow grind higher unless the bad news starts way outweighing the good news.
But the stock market is going to face some headwinds over September and October, especially with headlines like this in the SMH: “China likely to drag the world into global recession, Citigroup says.”
The newspaper describes the predictor as a “top economist”, who apparently coined the term “Grexit” and apart from making an unhelpful prediction at a vulnerable time, he should be pilloried for ever dreaming up such a silly word that was over-used by the media and the world in July this year!
His name is Willem Buiter and like the guy in the Rocky film who said: “Rocky Balboa? I’ve never heard of him”, the same goes for Willem! And I hope I never hear of him again.
In all honesty, with a lot of stuff written on this market mayhem this past week, the best I read was actually written by me! I sent this to our financial planning clients on Tuesday morning:
“Dear…
I wanted to let you know exactly what I’m thinking about this correction. It is overdue. It is over-the-top but these things are always like this.
I can’t see a solid reason for a crash – the US economy is growing solidly and while Chinese is growing slower than expected, it’s still growing above 6%. Also, with interest rates so low, I can’t see where stock sellers will put their money. Sir John Templeton told us that ‘Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria.’ I don’t think we are out of the scepticism phase and I haven’t seen optimism nor euphoria!”
What I liked
- This from AMP’s Shane Oliver: “… despite the recent set-back, share markets are likely to remain in a broad rising trend. While it seems a long way away, I remain reluctant to ditch my year-end target of 6000 for the ASX 200. The key though is that share markets are likely to be higher by year end than they are now.”
- The Oz dollar at 71.67 US cents, though it was as low as 70.5 US cents earlier in the week. Remember, we grow faster as the dollar falls.
- The Chinese interest rate cut of 0.25% and other responses that helped turn around the stocks sell off.
- The comments from the Fed President of New York, William Dudley, who said a rate cut was “less compelling” – that was beautiful timing.
- On reporting season, 43% of companies beat profit expectations and 59% saw their profits rise and that’s despite a pretty crappy economy in the first half of 2015, which was pre-Budget. Remember, this corporate picture would have been better if resource companies hadn’t gone through a shocker of a commodity price slump.
- Australian shareholders showing the guts and good sense to start buying as our market hovered near 5000 on the S&P/ASX 200 index.
- This headline from Craig James when better than expected business investment figures came out: “Biggest lift in investment plans in five years”
- A better than expected bounce in US economic growth – details below – but believe me, it was a good figure.
What I didn’t like
- Hearing an ABC radio news report that led with a story saying that these business investment numbers were the worst since the recession of 1990! Someone’s using and abusing statistics for media attention reasons and I don’t think it’s Craig!
- The media frenzy created by the market sell off earlier in the week – I wish I had more hair!
- The fact that September and October are the worst months of all for stocks. Against that, the year before a US presidential election has a history of being great for stocks, so I’m expecting a big finish to the year!
- Against that, I didn’t like this smart line from Warren Buffett for those who look to history: “If past history was all there was to the game, the richest people would be librarians.” I wish I’d said that!
Top stocks – how they fared
[table “108” not found /]The week in review
(click the blue text to read more)
- This week [1] I told you why this overdue correction could be a great ‘buy the dips’ opportunity.
- Paul Rickard [2] told you who is winning the supermarket wars – Coles vs Woolies.
- Charlie Aitken [3] explained why you need to add large-cap, liquid and high-quality companies as part of your ‘buy the dip’ strategy.
- Our Super Stock Selectors [4] liked Telstra and Wesfarmers.
- Tony Featherstone [5] also gave you five strategies to use for market mayhem.
- This week’s Fundie, Paul Kasian of Equity Trustees [6], told you why he likes Amcor Limited (AMC).
- The brokers upgraded AMP and Ardent Leisure [7] and in our second broker report [8], Caltex and CBA were upgraded to a buy.
- We looked back at some of our Super Stock Selectors [9] ‘likes’ and liked what we saw.
- And Tony Negline [10] explored how much it costs to run a super fund.
What moved the market
- Ongoing worries about a slowing Chinese economy.
- New York Fed president William Dudley said arguments for a rate rise in September “seem less compelling” despite his positive views on the economy.
- China’s central bank, which cut its benchmark interest rate by 0.25% to 4.6% and injected 140 billion yuan into its economy.
- A resilient US market, which rallied on the back of strong annual GDP growth – revised to 3.7% from last month’s 2.3%.
The week ahead
Australia
- Monday August 31 – Business indicators (June quarter)
- Monday August 31 – Private sector credit (July)
- Monday August 31 – Inflation gauge (August)
- Tuesday September 1 – CoreLogic home prices (August)
- Tuesday September 1 – Reserve Bank Board meeting
- Wednesday September 2 – Economic growth (June quarter)
- Thursday September 3 – International trade (July)
- Thursday September 3 – Retail trade (July)
- Friday September 4 – Tourist arrivals/departures (July)
Overseas
- Tuesday September 1 – China purchasing managers indexes
- Tuesday September 1 – US ISM manufacturing (August)
- Wednesday September 2 – US ADP employment (August)
- Thursday September 3 – US ISM services (August)
- Friday September 4 – US non-farm payrolls (August)
Calls of the week
(click the blue text to read more)
- Blackmores CEO Christine Holgate gave most of her 900 staff an extra six weeks’ pay on the back of the company’s record annual profit announcement. The company has a profit share scheme which gives 10% of profits back to its staff. This week it rewarded its shareholders by hitting $100 a share!
- The Association of Tennis Professionals made the call to give bad-boy Nick Kyrgios a 28-day ban and $US25,000 fine over his comments about Stan Wawrinka’s reported girlfriend. I’d give him a fine for his hair, too!
- My call that this bout of market volatility was a ‘buying the dip’ opportunity, albeit a scary one! See here [1] and here [11].
- Woolworths’ chairman Ralph Waters has fallen on his sword and will be replaced by Gordon Cairns as non-executive director and chairman on September 1, 2015. If you missed it, check out Paul Rickard’s article [2] on why Coles is winning the supermarket wars.
Food for thought
“It’s not whether you get knocked down; it’s whether you get up.”– Vince Lombardi, American football coach.
Last week’s TV roundup
- Centuria Capital CEO John McBain [12] joins the show to talk about what the company does and their recent earnings results.
- Was this the correction we had to have, a crash, or a buying opportunity? To discuss, economist David Bassanese [13] joins the show.
- Coca-Cola Amatil managing director Alison Watkins [14] joins the show to talk about the company’s better than expected results.
- And AMP’s chief economist Shane Oliver [15] talks about the economic land in China, the USA and here at home.
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 UGL Limited, with a 1.65 percentage point increase in the proportion of its shares sold short to 12.34%. The next biggest mover was JB Hi-Fi, with a 1.46 percentage point increase to 9.20%.
My favourite charts
Is this a 15-20 year bull market?
I like the look of this chart which shows the current market cycle of the S&P 500 (red line) with the average of the last two secular bull markets (blue line). The dip in the current market cycle looks like a normal period of market weakness that’s going to pick up over the long term. According to BMO Capital Markets Brian Belski, US stocks are six years into a 15-20 year bull market. It’s great to be a bull!
Blackmore’s shares break $100 mark
It’s a near perfect share price chart, with Blackmore’s entering the $100 a share club this week. That’s got to have CEO Christine Holgate, and her shareholders, grinning big.
Top 5 most clicked on stories
- Peter Switzer: Is this a correction or a crash? [1]
- Charlie Aitken: Don’t be like a deer in the headlights – buy quality [3]
- Charlie Aitken: It’s always darkest before the dawn [16]
- Paul Rickard: It is Coles or Woolies? [2]
- James Dunn: 5 strategies for market mayhem [5]
Recent Switzer Super Reports
- Thursday, 27 August, 2015: Fortune favours the brave [17]
- Monday, 24 August, 2015: Opportunity prevails [18]
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.