Good news on the stock market, with week one of the earnings show-and-tell coming in OK and the overall market gained. This resistance to gravity is a nice surprise for yours truly and to think that stocks tracked 0.6% higher for the week, with only an average performance from the key reporting companies (CBA, Westpac and Telstra) augurs well, if the next two weeks can deliver on the promise that ran ahead of these all-important corporate bottom line revelations.
Clearly, we’ve been helped by those damn, over-achieving Yanks – a trifecta of all-time highs for the Dow, the S&P 500 and the Nasdaq on Thursday. And how do the likes of Michael Phelps and Katie Ledecky keep on delivering gold in the Olympic pool? I have to say this seems like a country that’s happy to believe its own hype. Is it surprising that Dale Carnegie’s The Power of Positive Thinking is one of America’s most read books?
Despite some ordinary showings, what about Mesoblast? How well is this company named, with the stock blasting up 41% for the week? Good news on its arthritis trials helped bring this on. It was good to see Computershare add 13.2% after a long time in the wilderness. And hasn’t Nick Scali proved to be a durable performer, rising 15% to $5.52 on Thursday, after reporting a big lift in profit. It was a $4 stock in January!
Companies such as Nick Scali and AHG (the big car franchise aggregator) doing well are nice signs for the general economy and I’m hoping that we can see a lot more companies like these surprise on the high side.
A better-than-expected reporting season could be an overdue kick in the pants for the doomsday merchants, who know not what they do in pedaling their daily dose of fear via the media. And yep, my media buddies are always happy to go along for the ride!
That said, if it doesn’t shape up, we could see a pullback, though I’m not expecting anything significant, unless some black swan in the shape of Donald Trump or something equally appalling shows up. Remember August and September are dodgy months for stocks and with the Yanks at all-time highs, there have to be profit-takers out there waiting to pull the sell trigger if something crazy threatens the market’s current complacency.
On the other hand, there is positivity prevailing at the moment in the US, which even surprises me! And oil is helping.
On Thursday, US oil went 4.27% higher at $43.49 a barrel on comments from the Saudi oil minister that suggested collusion was coming. Meanwhile, the International Energy Agency forecasted that crude markets would tighten in the second half of 2016, which conforms with Goldman Sachs’ bullish call for oil.
“Oil is about stabilization,” said Art Hogan, chief market strategist at Wunderlich Securities. “If we get that above $40, we’re going to be OK.” (CNBC)
What Art is pointing to is how US stocks and oil have become buddies and if oil goes up, stocks follow. This partly explains why the pessimists are having trouble having their way on equity markets. However, fund managers are holding a lot of cash still but they aren’t infallible.
So where are we? Despite the fact that I expect a pullback is likely as US traders take profit, I think we’re set up for a nice finish to this year but it would be helpful if the polls and the bookies are right for a change and Donald Trump loses out in the November poll.
US market analysis business, Bespoke, has done the homework on what political party is the best for stocks and this is what they concluded: “There really shouldn’t be any debate; on a historical basis, Democratic Presidents are better for the stock market. The saying that Republican Presidents are better than Democrats for investors continues to be one of the bigger misconceptions there is in the investment world.”
(I’ll examine this and what politics will do for our stocks in the remainder of the year on Monday.)
What I liked
- Shane Oliver says the US June quarter reporting season is now more than 90% done and indicates a clear rebound in earnings from their March quarter low. Some 78% of companies have beaten on earnings and 56% have beaten on sales, both of which are above normal levels. More importantly, while earnings are down 2.7% year-on-year, they have come in around 3% better than expected and are up about 9% on the March quarter low.
- The Australian June half earnings reporting season has kicked off, with only 37% of companies exceeding expectations (compared to a norm of 45%). However, 71% have seen their earnings rise on a year ago, 52% have seen their share price outperform the market the day results were released and 93% have either maintained or increased their dividends. Of course, it’s early days with less than 20% of companies reporting so far. The next two weeks will be huge!
- The US job numbers impact on stocks this week.
- European shares rose on Thursday, hitting 2-month highs, underpinned by solid earnings results and you read this here first, I bet!
- The Westpac/Melbourne Institute survey of consumer sentiment rose by 2% in August to 101.0. The confidence index is up 1.6% on a year ago.
- The NAB business conditions index fell from +10.9 points to +8.4 points in July but it’s way over the long-term average of +4.9 points. The business confidence index fell from +5.4 points to +3.8 points, while the long-term average is +5.7 points but this reading was affected by the election debacle. The reading is still good on an annual basis.
- Everything Governor Glenn Stevens in his last speech said and especially his call for budget spending on infrastructure.
- The monthly US Federal Budget posted a deficit of US$113 billion in July, a 24% fall compared with 12 months ago! Economic success is good for beating deficits.
- Baby Bunting Group reported well, with net profit up 38%. That was one of Charlie Aitken’s interesting calls here some months back. Being a young dad gave him coalface exposure!
What I didn’t like
- Our dollar hitting 77 US cents this week – we don’t need this!
- US retail numbers were flat in August, which means there was no growth but the actual level of sales remains at good levels. The tip was for a 0.4% increase but I think it also shows the impact of the Internet. A company like Nordstrom saw full-line sales down 6.5% but online was up 9.4% and what they call Nordstrom Rack rose 5.3%. Old retail struggles but new, innovative retail has done well. By the way, Macy’s has been closing 100 stores so that could be a part of this flat retail story.
- The China numbers for fixed-asset investment, industrial output growth and retail sales didn’t paint a picture of an improving economic outlook.
- In Australia, total lending finance fell by 4.7% in June – the third consecutive fall. Lending totalled $64.2 billion in June, down 12.6% over the year and holding at a 19-month low.
- The InvestmentTrends/Vanguard survey of SMSFs reported that these investors are pessimistic on stocks for the year ahead. They plan to invest less in blue chip and high yielding stocks, which I think is crazy, with term deposits going nowhere!
- Magellan’s Hamish Douglas says he’s avoiding companies with exposure to Japan. He’s not punting on Abenomics working, which isn’t good for the world economy and stocks!
- The TWI (trade weighted index) of the Australian dollar is higher than prior to the May and August rate cuts, which isn’t great for keeping our growth rates up. Citi wants another interest rate cut in November.
- Perpetual is tipping that bank dividends are not sustainable. I hope they’re wrong but we need a stronger economy to make sure this big professional stock buyer winds up with egg on its face.
Top stocks – how they fared
[table “202” not found /]The week in review
(click the blue text to read more)
- With the US reporting good jobs numbers last weekend, I asked the question, is it time to buy stocks now, or play a cautious game? [1]
- Is your SMSF getting the highest rate on its cash? Paul Rickard found the best [2] cash and term deposit rates available.
- With the US experiencing the second-long bull market in history, Charlie Aitken discussed whether it can continue [3].
- Tony Featherstone analysed the battered up media sector [4]. There are plenty of challenges for old media, but some of the stocks look like better value after years of underperformance.
- Tony Negline warned about tax schemes [5], and how the ATO is helping with its new ‘Super Scheme Smart’.
- Roger Montgomery looked at the retail sector [6]. It has benefited from lower interest rates and property prices, but can it last?
- The brokers liked Downer EDI this week [7] but put Suncorp in the not-so-good books. In our second broker report [8], Ansell was in the good books but CBA and Telstra were downgraded.
- And our selectors in Super Stock Selectors liked Rio Tinto this week while South32 was in the likes and dislikes lists.
What moved the market?
- Earnings season kicked off with major companies CBA and Telstra reporting.
- Profit taking in the banks following CBA’s earnings result and Westpac’s warning about bad debts
- Volatility in the oil market, as supply concerns tested investor confidence.
- US market set all time highs this week after great employment data last weekend.
Calls of the week
- Malcolm Turnbull said ‘heads will roll’ over the failed Tuesday Census while Nick Xenophon said he would call for a Senate inquiry.
- Tony Featherstone said there could be new value emerging in old media and tipped Fairfax and News Corp as possible opportunities.
- The US American basketball players made the call to ditch the Olympic village and rent a luxury cruise ship as their temporary home!
- Vitaco received a takeover offer at $2.25, confirming Charlie Aitken’s call [9].
The Week Ahead
Australia
- Tuesday August 16 – Weekly consumer confidence
- Tuesday August 16 – New auto sales (July)
- Tuesday August 16 – Reserve Bank board minutes
- Wednesday August 17 – Wage price index (June quarter)
- Thursday August 18 – Unemployment/employment (July)
- Thursday August 18 – Average weekly earnings (May)
Overseas
- Monday August 15 – US NAHB housing index (August)
- Monday August 15 – US Capital flows (June)
- Tuesday August 16 – US Industrial Production (July)
- Tuesday August 16 – US Consumer prices (July)
- Tuesday August 16 – US Housing starts (July)
- Wednesday August 17 – US FOMC Minutes
- Thursday August 18 – US Philadelphia (August)
- Thursday August 18 – US Leading index (July)
- Thursday August 18 – China Home prices (July)
Food for thought
“If you do what you’ve always done, you’ll get what you’ve always gotten.” – Tony Robbins
Last week’s TV roundup
- Jordan Eliseo is chief economist at ABC Bullion, he joins Super TV to discuss investing in gold [10].
- Michael Holm, executive chairman of Balmain Corporation, explains how [11] commercial property loans could offer strong income returns and multiple levels of security.
- Managing director of Plato Investment Management, Dr Don Hamson, joins Super TV to discuss [12] maximising your income opportunities with high quality, dividend paying stocks.
- Pat Barrett [13] of UBS Global Asset Management discusses Real Estate Investment Trusts on Super TV.
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 Corporate Travel Management, with its short position decreasing by 2.78 percentage points to 7.22%.
[14]
Chart of the week
[15]
So just how many Olympic gold medals has Phelps won? 21, and probably more by the time you read this! This chart shows his dominance as the most successful Olympic athlete of all time.
Top 5 most clicked on stories
- Paul Rickard: The best rates on cash and term deposits [2]
- Peter Switzer: Do US jobs numbers mean we can load up on stocks? [1]
- Charlie Aitken: US equities – old or young bull? [3]
- Tony Featherstone: Value emerging in old media [4]
- Tony Negline: Beware tax schemes [5]
Recent Switzer Super Reports
- Thursday 11 August: The US bull market [16]
- Monday 8 August: US jobs beat expectations [17]
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.