Australian shares on Thursday finished the March quarter with the worst performance since the GFC, despite our major banks having a bit of a comeback.

The S&P/ASX 200 index slipped 30 points (or 0.52%) to 5759 on the final session before the Easter break, bringing the losses for the week to 68 points, and for the year, so far, to 306 points (or 5%). Fairfax reports: “Investors have only suffered two worse March quarters over the past 25 years – a 15% plunge in 2008 and a 6.3% cent loss in 1994.”

The Royal Commission plus President Trump’s tariff troubles, followed by the Facebook fiasco, have created the headwinds for the quarter.

Westpac lost a huge 8.8% over the quarter, while NAB dropped 3.8% and the market wasn’t helped by Telstra, which now has slumped to $3.14, which is a share price not seen for six years!

AMP’s Shane Oliver thinks the greatest negative for our market has come from overseas. He says our recent company reporting should have been good for our market but the Trump issues, plus the good economic performance and its likely impact on interest rates, haven’t helped stocks beat gravity – my descriptive words, not his, but I got his message right.

On Tuesday, technology shares weighed on Wall Street and then our market, as Facebook shares fell by 4.9% on a broker downgrade by Bank of America Merrill Lynch. News that CEO Mark Zuckerberg would testify in front of US Congress due to the data privacy scandal didn’t help the market. On the same day, Twitter fell 12% after Citron Research said it was short the stock. All data-dependent stocks look vulnerable to future regulations that would cut revenues and add to costs.

On Tuesday, the Dow was off 344 points and the news didn’t get better until Thursday, when profit-takers and dip buyers started showing faith in the likes of Facebook. Late last week, the company was around $166 and saw its share price plummet to $149 on Monday, when the whole data abuse story raised doubts about the company’s future revenues, as well as costs in data-protecting laws come down the pike.

Ironically, US shares managed to rise 2% over the week, paring their loss in March to 2.7%, while we dropped about 4.2%. The difference has to be put down to the witch hunt, which is the Royal Commission into our banks, and then Bill Shorten’s initial ‘bright’ idea to kill all tax refunds to all retirees on the assumption they must all be rich!

The good news of the week was the apparent giving of ground by China to President Trump. Reports that China had offered to buy more semiconductors from the US to help cut its trade surplus with the US boosted stock market optimism. Another plus was the news that the US reportedly asked China to slash tariffs on US autos and provide greater access to the Chinese financial sector.

Shane Oliver says the whole tariff tantrum was over the top.

“The initial market response to President Trump’s proposed tariffs on China was an overreaction, with US shares losing $US1.4 trillion in market cap in response to maybe less than $50bn in tariffs, on a tiny fraction of global trade, when the US will see something like $US800bn in fiscal stimulus this year,” he pointed out.

In other market-spooking news, “US bank funding costs are still blowing out, with a flow to Australia – but it’s not a GFC re-run,” Shane says. “The gap between US dollar interbank lending rates and the expected Fed Funds rate has continued to widen, raising concern about some sort of credit crunch.”

But he insists it’s all minor compared to the GFC and shares this chart, which he thinks proves it. Note, the difference in the spike in 2009 compared to now but it still bears watching.

Source: Bloomberg, AMP Capital

The biggest issue for Aussie investors will be about whether our local positive factors can eventually get on top of the negative external headwinds that are dragging stocks down. Volatility will persist this year but I’m betting it’s on a rising trend.

Shane Oliver is looking for a 6300 top for the S&P/ASX 200, while Macquarie is at 6400. But if Donald Trump can pull off some good work to arrest his popularity problems before the mid-term elections in November, then maybe our stock market might get some real oomph in the second-half of 2018 and get to 6600.

Shane thinks the interest rate differential between us and the US will bring the Oz dollar down, however, Macquarie’s Martin Lakos told me this week on my Money Talks show that his analyst buddies expect BHP to head towards $36. I suggest this would happen with commodity prices holding up, so the dollar’s dive would hardly be dramatic if that ends up being the case.

Barring some hard-to-see curve ball, we are in another buying opportunity.

What I liked

• Job vacancies rose by 4.3% to a record 220,900 in the three months to February. Job vacancies are up 19.3% on a year ago – the strongest annual growth rate in over seven years.
• Employment rose by 75,200 in the three months to February after a gain of 66,300 in the previous three months.
• Over the past 12 months, 421,100 people have found jobs, the largest annual increase on record. A record 12.5 million Aussies are employed. Retail jobs are at a record high 1.3 million.
• Total household wealth (net worth) stood at a record $10,192.3 billion at the end of December, up $191.7 billion (or 1.9%) over the quarter. In per capita terms, CommSec estimates that wealth rose to a record $411,229 in the December quarter.
• Foreigners held a record $581.4 billion of Aussie shares in the December quarter (or 30.4% of the total).
• Over the year to January, the proportion of occupied seats on domestic flights hit a 7-year high of 79.4%, which is a nice indicator for the economy.
• The US economy grew at a 2.9% annual pace in the December quarter, above forecasts of a 2.7% gain.
• The Chicago Federal Reserve National Activity index increased to 0.88 in February from 0.12 in January – that’s a big rise.
• Chinese industrial profits accelerated in January/February to a growth of 16% year-on-year, providing more evidence that Chinese growth has held up for the start of the year.

What I didn’t like

• The Facebook fiasco and its impact on stocks!
• Private sector credit (effectively outstanding loans) rose by 0.4% in February after a 0.3% rise in January. Annual credit growth held at a 3½-year low of 4.9%. M3 money supply rose by 3.8% over the year, the slowest growth in 25 years.
• The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.9% to 117.4 last week but confidence is up by 5.7% over the year and above the average of 113.6 since 2014 and average of 112.9 since 1990.
• In seasonally-adjusted terms, new detached home sales fell by 0.7% in February after falling by 2.1% in January. Sales are down by 1.4% over the year.
• The Dallas Federal Reserve Manufacturing Business index fell to 21.4 in March from 37.2 in February.
• The Conference Board index of consumer confidence in the US fell 2.3 points to 127.7 in March (forecast 131).
• The UK FTSE fell to fresh 15-month lows on Monday, with Brexit concerns not helping. By week’s end, some good Brexit news helped UK stocks spike.

Smith and Sandpaper Gate

Not surprisingly, Magellan Financial has walked away from its three-year deal to sponsor the Australian men’s domestic cricket test series. This underlines how precarious it is for a listed company to pair up with a sports team. You might be interested in my take on Steve Smith and the positive lesson from this cricketing crisis.

Have a great Easter!

The Week in Review:

• Is this trade war another stock buying opportunity? It’s a serious threat, but fortune might just favour the brave who buy on dips. I looked at Trump’s trade war madness!
• Paul Rickard takes a look at the banks and whether they are a buy or a sell. Considering the pressure from the Royal Commission, will it impact earnings?
• This Hong Kong-listed Chinese insurer has plenty of positive tailwinds behind it, and even offers a dividend. Charlie Aitken explored Ping An Insurance. Find out about the company here.
• With Easter this weekend, James Dunn shared with us 3 stocks to hop into! Also, he looked at 3 stocks that could rise from the dead!
• More Australians holidaying overseas is good news for listed travel companies. Ride the travel boom with these 2 companies Tony Featherstone shared with us.
• Have you ever thought that your SMSF is no longer something you want to be a part of? Graeme Colley explains the steps to take when you want to wind up your SMSF and hang up the trustee boots.
• This week’s Professional’s Pick is a hot kitchen appliance distributor. Find out what Michael Wayne of Medallion Financial chose.
• In this week’s first Buy, Hold, Sell – what the brokers say, Nufarm got an upgrade while Mineral Resources was downgraded.
• And in the second Buy, Hold, Sell- what the brokers say, there were two downgrades for Whitehaven Coal.
• These two companies could benefit from global macro movements and this week’s Hot Stocks are Select Harvests and Macquarie Group.
• Plus, Banks are obviously front of mind for our readers this week and Paul Rickard reminds one why it sometimes pays to go against the grain. Don’t miss our Questions of the Week.

Top Stocks – how they fared:

What moved the market?

• The on-going Trump/tech problems. Just when we thought Trump had got some ground off the Chinese to avert a trade war… Facebook crunched tech stocks bringing other techs down with it.
• There were signs this week the risk of a trade war was easing after Chinese Premier Li Keqiang said on Monday China and the U.S. should maintain negotiations in a bid to avert a trade war.

Calls of the week:

• Disgraced cricketers David Warner, Steve Smith and Cameron Bancroft receiving 12 and 9 month bans from the sport respectively in light of the ball tampering scandal.
• James Dunn made a call which could see three stocks rise from the dead!
• Could now be a good time to sell? Find out what call Charles Tarbey made in his Switzer Daily article here.

Food for thought:

“Life is a journey. When we stop, things don’t go right” – Pope Francis

Chart of the week:

Job vacancies rose by 4.3 per cent to a record 220,900 in the three months to February. Job vacancies are up 19.3 per cent on a year ago – the strongest annual growth rate in over seven years.

Top 5 most clicked:

1. Banks – buy or sell?  Paul Rickard
2. 3 stocks to hop into  James Dunn
3. Is this trade war another stock buying opportunity? Peter Switzer
4. Let your winners run, even the speculative ones – Kidman Resources update  Charlie Aitken
5. Buy, Hold, Sell – what the brokers say  Rudi Filapek-Vandyck

Recent Switzer Super Reports:

Monday 26^th March:  Fortune favours the brave

Thursday 29^th March: Easter Eggs

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.