The second-wave infections in Europe and the US have taken the wind out of the sails of stock markets and remain a threat, especially if they get out of hand. And now Covid has claimed the US President and the first lady, it has spooked our stock market.
It was going to be interesting to see how the news affected Wall Street. That was the expert view before US stocks came out of the blocks. And while alarmists thought there’d be a big reaction and would be an indicator of how Wall Street would react to a President Biden after November 3, the reality is there’s only been a small sell off.
And it might have been an even smaller market dive if the jobs report (out overnight) came in better than it did. Economists expected a jobs gain of 800,000 but new jobs rose by only 661,000 in September (though this is still a big number). On the plus side, the unemployment rate fell to 7.9%, which is a big improvement on the 14.7% number we saw in April!
In case you’ve missed it, we’re in a bit of a correction in the trickiest months of all for stocks. And the virus, the US election and the delayed second-round stimulus package are clearly behind why Wall Street is on a downtrend. Meanwhile, we’ve had to cop the US stock market lead, on top of our Victorian second-wave lockdown crisis, which thankfully is heading in the right direction.
What’s interesting is that despite second-wave infection problems in the US, the Yanks are getting a V-shaped economic recovery, which partly explains why US stocks have performed so well. “The US remains on track for an initial deep V-recovery, with the Atlanta Fed’s GDP Now indicator pointing to a 9% rebound in the September quarter GDP based on already released data, after a 9% June quarter contraction,” AMP Capital’s Shane Oliver revealed this week. “Going forward, it’s likely going to be a lot slower…”
But this V-shaped recovery in the US won’t keep happening if this stimulus political battle is sustained.
By the way, this economic rebound for the US economy was pretty good, considering the economy contracted at a 31.4% annual rate in the June quarter. Earlier this week, US Treasury Secretary Steven Mnuchin said he thought Democrats and Republicans could “reach a reasonable compromise” on a new stimulus bill and that’s why US stocks were up this week, pretty solidly, until the Trumps were KO’d by COVID-19.
Eurozone unemployment rose in August to 8.1% but economic sentiment continued to recover.
Japanese industrial production and the Tankan business sentiment survey rose but they’re still a long way from normal. And the ratio of job openings to applicants continued to fall.
Chinese business conditions PMIs all remained solid in September, indicating that China’s expansion is continuing.
To the local story, and the S&P/ASX 200 index gave up 1.4% (or 81.4) points on Friday to end at 5791.50. That means the five-day drop was 2.9%, which was the worst week since April.
S&P/ASX 200
Some star stocks had a rough week, with the FDA in the USA not giving the green light to Mesoblast and a2 Milk disappointing after its daigou business was shown to be more important than many thought.
Happily for yours truly, Zip spiked 8.9% to $6.49 and EML Payments put on 13% to $3.05. And what about Corporate Travel Management, the stock that keeps rising despite being in the travel space? I’ve got to get the CEO of that operation on my TV show to explain how it’s impressing the market.
Meanwhile, BOQ (which had been having a good run) fessed up to $175 million provision for loans at risk. That said, its post-Coronavirus crash story still looks OK, with the stock up 19%. But the new CEO George Frazis has a job ahead of him. This was a $13 stock three years ago.
Against this negative stuff, I believe the improved Victorian story, plus next week’s big spending Budget, will have a positive impact on stocks.
What I liked
- The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.6% to a 14-week high of 95 (long-run average since 1990 is 112.6). Confidence has lifted in six of the past seven weeks. Sentiment is up by 45.5% since hitting record lows of 65.3 on March 29 (the lowest since 1973).
- According to the Commonwealth Bank, card spending in the week to September 25 was up 4% on a year ago, compared to 4.3% for the week ending September 18.
- According to SEEK, “In the fortnight ended 27 September 2020, job ad volumes across Australia were 80% of pre-COVID levels. This is a continuation of the strong growth seen in August and is the highest national job ad figure since COVID began having an impact in March.”
- In seasonally-adjusted terms, job vacancies rose by a record 59.4% to 206,000 available positions in the three months to August. Vacancies partially recovered after falling by an historic 43.2% in the three months to May. But vacancies are still down 8.1% over the year to August, with available positions 21,300 (or 9.4%) lower than pre-pandemic levels in February.
- Considering the recession, it’s unbelievable that the CoreLogic Home Value Index of national home prices fell by just 0.1% in September. Prices were up 4.8% over the year. Prices rose in six of the eight capital cities in September.
- The ‘final’ IHS Markit Manufacturing Purchasing Managers’ Index rose from 53.6 to 55.4 in September. Readings above 50 indicate expansion in activity.
- The Conference Board Consumer Confidence index in the US rose from 86.3 to 101.8 in September (survey: 90), which was the biggest increase since April 2003!
- The ISM manufacturing index fell from 56 to 55.4 in September (survey: 56.5). Construction spending rose 1.4% in August (survey: 0.7%).
- US private sector jobs (as measured by ADP) rose by 749,000 in September (survey: 650,000).
- Pending home sales rose by 8.8% in August to record highs (survey 3.4%).
- The Chicago Purchasing Managers index rose from 51.2 to 62.4 in September, which was the highest level since February 2019 (survey: 52).
What I didn’t like
- Retail trade fell by 4% in August (consensus: minus 4.2%), after rising by 3.2% in July. But retail trade is up 7.1% over the year.
- There was a decline in building approvals and very weak growth in credit.
- The AiGroup Performance of Manufacturing Index fell from 49.3 to 46.7 in September.
- The delay in the second leg of stimulus in the US as the Democrats and Republicans argue over the size of that stimulus.
- Second-wave infections in Europe, the US and places like Brazil.
- Eurozone unemployment rose in August to 8.1% but economic sentiment continued to recover.
- This from Shane Oliver: “Our US Economic Activity Tracker ticked down again in the last week but is continuing to trace out a gradual rising trend after the initial rapid pick up from April.” See the chart below:
But I liked this…
“The decline in new cases has seen our Australian Economic Activity Tracker continue to hook up from August lows, with gains over the last week in restaurant and hotel bookings, traffic and mobility,” Oliver said. “Expect the trend to remain up as Victoria reopens a bit more quickly than had been originally flagged and other states continue to recover.”
And I liked this from JPMorgan in the US…
“The private bank forecasts that the S&P500 would rise to between 3,500 and 3,600 points by the end of this year and then 3,750 by September 2021, representing a potential 10% rise from its last close at nearly 3,352 points.” (CNBC)
The sectors expected to do well were industrial, construction material stocks, companies into digital transformation businesses, those in healthcare innovation, renewable energy operations and cyclicals generally, as they believe in a 2021 economic recovery.
By the way, despite the holiday for a number of states, we’ve put together a Switzer TV Investing programme for Monday, where I ask our experts what single stock they want to buy more of AND which one they want to shed from their portfolio. This will be more rewarding viewing than the footy finals, I promise you that!!
The week in review:
- September has passed with no stock market crash! So far, so good. While October has had some real doozies when it comes to crashes, here are 7 reasons why I’m not scared [1].
- Paul Rickard shared 4 top tech stocks to consider buying on the dip [2].
- In his article this week, James Dunn said that investors shouldn’t ignore some of the value in the second-tier banks [3].
- Tony Featherstone looked at 2 companies well placed to benefit from Covid-19 changes to learning [4].
- Our “Hot Stock” [5] this week was Westpac.
- Joshua Williams wrote that all indicators point to a change to the $25,000 concessional contribution cap from July 1 next year [6].
- In Buy, Hold, Sell – What the Brokers Say for the week, there were 10 upgrades and 3 downgrades in the first edition [7], and a further 8 upgrades and 1 downgrade in the second edition [8].
- And in Questions of the Week [9], Paul Rickard answered questions about a2 Milk, Dexus, ETFs and Nufarm.
Our videos of the week:
- Webinar: Shocktober [10]
- Our experts assess Brainchip, Nearmap, Treasury Wines and tech stocks — Apple, Next DC and Xero? [11] | Switzer TV: Investing
- House price boom in 2021! Believe it baby, believe it! [12] | Switzer TV: Property
Top Stocks – how they fared:
The Week Ahead:
Australia
Monday October 5 – IHS Markit purchasing managers – services (Sep.)
Tuesday October 6 – Federal Budget
Tuesday October 6 – Reserve Bank Board meeting
Tuesday October 6 – New vehicle sales (September)
Tuesday October 6 – Weekly consumer confidence (October 4)
Tuesday October 6 – ANZ job advertisements (September)
Tuesday October 6 – International trade (August)
Wednesday October 7 – AiGroup performance of services index (Sep.)
Wednesday October 7 – Weekly payroll jobs & wages (September 19)
Wednesday October 7 – Credit & debit card lending (August)
Friday October 9 – Reserve Bank Financial Stability
Friday October 9 – Review Lending indicators (August)
Overseas
Monday October 5 – US IHS Markit purch. Managers – services (Sep.)
Monday October 5 – US ISM services index (September)
Tuesday October 6 – US Federal Reserve Chairman Powell speech
Tuesday October 6 – US International trade balance (August)
Tuesday October 6 – US JOLTS job openings (August)
Wednesday October 7 – US Federal Reserve meeting minutes
Wednesday October 7 – US Consumer credit (August)
Wednesday October 7 – US Vice-presidential debate
Thursday October 8 – China Caixin services index (September)
Thursday October 8 – US Weekly initial jobless claims (October 3)
Friday October 9 – US Wholesale inventories (August)
Food for thought:
“Successful investing is anticipating the anticipations of others.”– John Maynard Keynes
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:
Following the dramatic first presidential debate between Donald Trump and Joe Biden earlier this week, AMP Capital’s Shane Oliver looked at how the US share market has performed during different configurations of government. Notably, the best returns on average have been when a Democrat has been president and Republicans have held the Senate, the House or both:
Top 5 most clicked:
- 7 reasons why I’m not scared of a possible stock-shocking October [1] – Peter Switzer
- 4 top tech stocks to buy in a dip [2] – Paul Rickard
- 2 second-tier banks that stand out [3] – James Dunn
- 2 winners from the pandemic fallout [4] – Tony Featherstone
- My “HOT” Stock [5] – Maureen Jordan
Recent Switzer Reports:
- Monday 28 September: 7 reasons why I’m not scared of a stock-shocking October [13]
- Thursday 01 October: 2 winners from the pandemic fallout [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.