The tech turn-off continued on Wall Street overnight. This kind of development is never good for our tech stocks, which have been pretty important for the overall advancement of our market indexes, given banks continue to be in the beaten-up basket.
Afterpay (APT) lost 5.5% for the week to $73.87, which wasn’t too bad considering it had the threat from PayPal last week, and then both CBA and NAB came out this week with 0% credit cards to try and win back younger Aussies who hate credit cards. That said, APT has been under pressure since tech started to cop it in the US as a rotation into other sectors progressed.
This one-month chart puts it all into perspective. Note that the chart is green, meaning the stock is actually up for the month!
APT
Au.finance.yahoo.com
Yep, these sure are crazy times! But recall that I’ve told you many times before that the S&P 500 has rebounded so much more than our S&P/ASX 200 Index because of the FAANG and other stocks (such as Microsoft) that have surged in a locked down, work-from-home era.
A rotation out of tech into cyclical stocks is happening. That’s why the Nasdaq and the S&P 500 indexes are down overnight but the more conventional company-oriented Dow Jones Index is actually up.
That said, this tech boom has meant that our investing world has changed, probably forever. For example, the word “zoom” now has another meaning that could threaten airline profits, as face-to-face interstate and international meetings are reduced to zoom get-togethers. And then hotels, which profited from live events, will now have to compete with the cheaper online alternative.
Two months ago, I had no worries backing the trend to go higher, although I expected some pullbacks. But the current market looks a little more volatile and tricky.
This is a good summation of what seems to be going on: “Markets continue to struggle finding an equilibrium,” said Mark Hackett, chief of investment research at Nationwide on CNBC. “This market is more akin to the emotional swings of March and April than in recent months. We are likely to continue in a period of directionless volatility as bulls and bears wrestle between the strong Fed liquidity and improving economic backdrop and the continued uncertainty and elevated valuations.”
To that, you have to throw in all these factors:
- An upcoming US election, with Donald Trump behind in the polls.
- The fact that tech stocks were taken to excessively high levels in a short time.
- The second-wave infections have reduced potential confidence as well as economic growth levels.
- US-China trade tensions have hit some key companies; and
- The question marks over when a vaccine will show up to save economies worldwide.
This was the best ‘economic’ news I read this week but it’s still speculative: “Australia expects to receive its first batches of a potential COVID-19 vaccine in January after a deal was struck with CSL to manufacture two vaccines, one developed by rival AstraZeneca and Oxford University, and another in CSL’s own labs with the University of Queensland. AstraZeneca jumped 4%, with the European healthcare sector index gaining 2.1%.” (Reuters)
This reminds us that the big move for the short-term course of the stock market will be vaccine-related. The US election result and the economic data drop come in close behind but if a vaccine arrives earlier than expected, we’re off to the races. Imagine Melbourne’s overdue joy if a vaccine showed up before the November 3 Cup! Alas, that looks like too optimistic a hope, even for me!
From my point of view, this current pullback period is healthy as valuations have got ahead of themselves, as the APT chart above shows.
This week on my Peter Switzer Show podcast, I interviewed the chief economist of The Australia Institute, Richard Denniss, who made the point that in June we had a 7% drop in what we make.
In simple terms, we’re around a $2 trillion economy a year, which is about $500 billion a quarter. In the June quarter, we lost $125 billion in GDP. That was after losing 0.3% in the March quarter. And we could lose 3% in the September quarter because of the Victorian problem. Even if 2021 is a solid-growth year, it will still leave us with GDP less than it was when we finished 2019.
And unemployment is likely to be in the 8% plus range, so we really need the excessive positivity that only a vaccine coming earlier than expected could bring.
That’s the possible future. What about the local story this week?
The S&P/ASX 200 Index closed the week 1.1% lower (at 5859.4). That’s our fourth weekly loss on a trot and it’s primarily tech-related. But the boomers of the work-at-home phase (such as Wesfarmers down 3.7% and Woolworths down 3.4%) are simply losing now because of profit-takers looking at a period ahead, which doesn’t look excessively positive. My above list of worries out there explains why some professionals would be taking profit.
Investors have bought some stocks (such as Transurban down 2.2% and Sydney Airport down 6.6%) for a recovery in 2021 and these stocks are also victims of profit-taking plays.
Banks continue to be whipped for their role in the economic rescue, with CBA down 1.4%. It’s now priced at $65.80. Meanwhile ANZ lost 1.6% to $17.53, NAB gave up 1.2% to $17.15, while Westpac slipped 1.5% to $16.81.
It was interesting that lower oil prices and energy stocks were linked to a rise in COVID-19 infections worldwide. This is an issue that underlines the importance of a vaccine.
Woodside Petroleum lost 4.4% to $18.13, while Oil Search slumped 8.4% to $2.85. Imagine how these companies would spike on good vaccine news.
The miners were the only bright spot, with BHP up 1% to $36.55, while Rio Tinto lost a few executives but gained 4.5% on its share price to finish at $99.86. That said, China’s economic growth and Brazil’s Coronavirus problems are helping our miners’ share prices.
This Bloomberg chart in the AFR gives you a nice snapshot of the sector performance this week.
I suspect these will be like this for a while and could become the clue to what sectors could provide buying opportunities, if you want to gamble on a vaccine-helped recovery next year. I quite like that investing idea and will talk about it in coming weeks.
What I liked
- The Westpac-Melbourne Institute Index of Consumer Sentiment rose 18% in September, lifting from 79.5 to 93.8. A reading below 100 points denotes pessimism.
- The weekly ANZ-Roy Morgan consumer confidence rating rose by 1% to 91.1 (long-run average since 1990 is 112.7). Confidence has lifted in three of the past four weeks. Sentiment is up by 39.5% since hitting record lows of 65.3 on March 29 (the lowest since 1973).
- The value of home loans rose by 8.9% in July after a 6.4% rise in June (consensus: up 2%). It was the biggest back-to-back increase in home loans in 18 years of records. First homebuyer numbers are at a 10½-year high.
- Encouragingly, regional tourism spending lifted by $1.09 billion to $2.14 billion in June. Aussies took 5.41 million domestic trips in June, up 2.36 million from May. The number of nights spent interstate or intrastate totalled 18.47 million in June, up from 11.95 million in May.
- Researchers (such as acaresearch, fifth quadrant and TEG Insights) have found that the proportion of SMEs with significant revenue declines from COVID-19 (that is, over 30%) has reduced from 57% in July to 45% in late August. This is the lowest level since the inception of the research four months ago.
- The Bureau of Statistics (ABS) reported that between August 8 to August 22, payroll jobs rose by 0.3%, with wages up by 0.2%.
- The biggest week for dividend payouts is the week beginning September 28, when $8.4 billion will be paid out by listed companies to their shareholders. It’s smaller than we’d all like but you can blame the Coronavirus for that!
- The Labor Department on Friday said its US consumer price index rose by 0.4% in August. Economists polled by Reuters expected an increase of 0.3%.
- Chinese consumer prices rose 0.4% as expected in August, to be up 2.4% on the year.
What I didn’t like
- In August 2020, only 69% of ASX 200 companies elected to pay a dividend. That’s down from 87% of companies that reported half-year earnings in February and down from the 88% that paid dividends in the August 2019 reporting season.
- The NAB business confidence index improved from minus 14.2 points to minus 8 points in August (the long-term average is 5 points). The business conditions index fell from minus 0.3 points to minus 5.8 points (the long-term average is 5.2 points). These were OK numbers but have been infected by Victoria’s second wave lockdown. That’s what made them more negative than they should be.
- Chinese producer prices fell 2% over the year and while expected, I’d prefer to see them rising as a good sign for economic growth.
THE BIG WATCH — Jobs on Thursday
On Thursday we get our latest jobs report and this will be a really important number in trying to work out if the negatives from Victoria can be outweighed by the positives from other states. I’ve liked the improvement in consumer confidence in recent weeks but business confidence is still struggling. Business would love a vaccine ASAP.
Go vaccine companies!
The week in review:
- Here’s a group of 7 quality companies [1] that have a good outlook for dividends and potential for share price upside.
- I also gave you my honest and thoughtful view [2] on a CIE board approved change that CIE shareholders will vote on 18 September.
- Recently, Paul Rickard has been thinking about the stocks he really wants to buy if a big enough dip happens. Here is his list [3].
- James Dunn put together a group of 5 stocks that stand out for the relative reliability of their dividend outlooks [4].
- Tony Featherstone been searching outside the box for yield [5] and ploughed through reporting season to find dividend ideas, using his four-step framework.
- Afterpay (APT), Zip (Z1P), Tyro (TYR), Xero (XRO) and Megaport (MP1) [6]: what do we think of these 5 tech stocks now, and in three years’ time?
- 13 upgrades and 8 downgrades made up the first Buy, Hold, Sell – What the Brokers Say [7] of the week, while there were a total of 8 downgrades in the second edition [8].
- In Questions of the Week [9], Paul Rickard answered your questions about IOOF, Tesla, Zip-v-Afterpay and gold miners.
Our videos of the week:
- Boom! Doom! Zoom! [10] | September 10, 2020
- Tech stocks on the slide! Which stocks are the best buys? [11] | Switzer TV: Investing
- The secret trends that REA Group’s websites show us about house prices + hot suburbs to invest in! [12] | Switzer TV: Property
Top Stocks – how they fared:
The Week Ahead:
Australia
Monday September 14 – Overseas travel (August)
Tuesday September 15 – Consumer confidence index (September 13)
Tuesday September 15 – CBA credit & debit card spending (September 11)
Tuesday September 15 – CBA Household Spending Intentions (August)
Tuesday September 15 – Reserve Bank Board minutes
Tuesday September 15 – Residential property prices (June quarter)
Thursday September 17 – Speech by Reserve Bank official
Thursday September 17 – Reserve Bank Bulletin
Thursday September 17 – Unemployment/employment (August)
Overseas
Monday September 14 – China house price index (August)
Monday September 14 – US Consumer inflation expectations (August)
Tuesday September 15 – China monthly data (August)
Tuesday September 15 – US Industrial production (August)
Tuesday September 15 – US Empire State manufacturing index (Sep)
Tuesday September 15 – US Export & import prices (August)
September 15/16 – US Federal Reserve interest rate decision
Wednesday September 16 – US Retail sales (August)
Wednesday September 16 – US NAHB Housing market index (September)
Thursday September 17 – US Housing starts (August)
Thursday September 17 – US Philadelphia Federal Reserve index
Friday September 18 – US Leading index (August)
Friday September 18 – US Consumer confidence (September)
Food for thought:
“Become the kind of leader that people would follow voluntarily; even if you had no title or position.” – Brian Tracy
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 shows how this has changed compared to the week before.
Chart of the week:
CommSec reported that dividends totalling about $21.6 billion will be paid to shareholders between July 17 and November 3, compared to about $29 billion during last year’s earnings season:
Source: CommSec, ASB Securities, iress
Top 5 most clicked:
- 7 dividend paying stocks [1] – Peter Switzer
- 5 stocks I’d buy in a tick if there’s a dip [3] – Paul Rickard
- 5 star income stocks [4] – James Dunn
- 3 dividend ideas for income investors to consider [5] – Tony Featherstone
- Questions of the Week [9] – Paul Rickard
Recent Switzer Reports:
- Monday 07 September: 7 dividend paying stocks to buy [13]
- Thursday 10 September: I believe WCM to be the best [14]
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.