Good news didn’t last long after Donald Trump contradicted US House speaker Nancy Pelosi on her “we’re just about there” comment about a new coronavirus stimulus package. His negativity was backed up by his Treasury Secretary, Steve Mnuchin, who said: “We’ve offered compromises, the speaker on a number of issues is still dug in.”
Not surprisingly, Wall Street didn’t like this stimulus stalemate, which delays economic relief and pressures shoppers, as the all-important holiday season kicks off at the end of November, and stock prices headed down.
In fact, US stocks have struggled since October 12 and means this better-than-expected reporting season so far hasn’t been a big help.
S&P 500
And you can blame the stimulus stalemate and the uncertainty linked to the looming election, which have been checked by the improving news around a vaccine. However, be clear on this: if eventually vaccine news disappoints, there could be a significant correction and only a decent stimulus deal will limit the damage to stock prices.
On the flipside, a good stimulus deal ASAP on top of a vaccine before year’s end would mean we’ll see another notable leg up for stocks. And here’s something that might rock our profits from tech companies, with Bank of America analysis saying that a Biden win with a Democrat clean sweep (taking out the House and the Senate) will mean higher taxes and more regulations, especially for tech companies!
The problem for us is that when US tech spikes, so do we and vice versa, because the likes of Afterpay and Zip increasingly are making more money out of their US businesses. That said, this week, tech shares shook off the US Justice Department’s decision to sue Google for allegedly abusing its market power and something like this could be more pursued by a Democrat President.
Interestingly, with 25% of S&P 500 companies having reported, 83% have beaten earnings expectations and the average beat was 19% compared to an historic beat of between 3% to 5%. (CNBC)
Hurting the 30-stock Dow Jones index overnight were the poor reports from American Express, which was down 3.28% and Intel lost 10.87%. But elsewhere, US companies are reporting OK, considering what they’ve been through.
To the local story and our seven-month high reached on Monday didn’t last the week, with the S&P/ASX 200 Index losing 9.8 points (or 0.2%) for the week, to finish at 6167, which is pretty good considering we battled with the 6000-level for quite some time. I call it the Frydenberg rally but I can’t get anyone else in the media to get on board.
S&P/ASX 200
That said, if you made money over the past two weeks, I’d send Josh a Christmas card, especially if you accepted Paul (Rickard) and my faith in the big three banks that a rally was out there for them. Westpac’s up 13% in a month, and over the week NAB was up 1.6% to $19.53, ANZ rose 2.4 % to $19.78, CBA popped 1% to $69.90 and Westpac rose 0.6% to $18.78. CBA has less upside because it has had less problems compared to its peers.
The stocks that had a good week include:
- Bluescope, up 9.19%.
- Qantas, up 8.08%.
- Challenger, up 7.85%.
- South 32, up 5.5%.
- Pro Medicus, up 12%.
The rotation from companies that benefitted by the lockdown (such as Woolworths) to those that will gain from a reopening of the economy (such as Qantas) explains why some stocks lost friends over the week.
Wesfarmers fell 2.7% to $46.92, CSL slipped 1.4% to $294.82, Goodman Group dropped 3.3% to $18.47, Telstra gave up 3.9% to $2.73, Woolworths was off 1% to $38.82, Coles declined 3% to $17.19, Amcor lost 4.7% to $15.38 and Brambles was 3.8% lower at $10.26.
One recent market darling, Megaport, disappointed, with its latest performance update. It lost 11.2 over the week. I’ll be checking with my experts who’ll be on Monday’s TV investing show to see if this is a buying opportunity.
But let’s get positive.
Source: AMP Capital
And it’s good to see our economic activity tracker kick up. Just imagine what will happen when Victoria takes away more restrictions as Christmas shopping looms and maybe borders open up! Meanwhile, this is my favourite market quote of the week that came from Citi’s equity strategist Liz Dinh, who told the AFR that “the Australian market’s underperformance may be over, as successful management of the pandemic leads to a positive outlook for businesses”.
What I liked
- The Australian Bureau of Statistics has released the Business Impacts of COVID-19 survey for October. According to the survey: “The proportion of businesses reporting a fall in their monthly revenue decreased from 47% in July to 31 per cent October.” And, “almost three quarters (73%) of businesses had not sought additional funds over the previous six months.”
- In seasonally-adjusted terms, the Internet Vacancy Index (IVI) increased by 6.4% (or 8,700 job advertisements) in September 2020 to stand at 144,000. Job ads are still 12.2% (or 19,900 advertisements) below the level recorded in September 2019.
- The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.4% to a 20-week high of 98.1 (long-run average since 1990 is 112.6). Confidence has lifted in nine of the past 10 weeks. Sentiment is up by 50.2% since hitting record lows of 65.3 on March 29 (lowest since 1973).
- The Chinese economy (GDP) expanded by 2.7% in the September quarter (consensus: +3.3%) after expanding by 11.5% in the June quarter. GDP grew at a 4.9% annual rate in the year to September (consensus: 5.5%), up from a 3.2% annual growth rate in June. Economic activity expanded by 0.7% in the first nine months of 2020 from a year earlier (consensus: 0.7%).
- US initial jobless claims for unemployment benefits fell by 55,000 to 787,000 last week (survey: 870,000).
- The Conference Board leading index lifted 0.7% in September (survey: 0.6%). The Kansas City Fed manufacturing index rose from 18 to 23 points in October (survey: 12).
- In September, housing starts rose by 1.9% to an annual rate of 1.415 million units (survey: 1.465 million). And building permits lifted by 5.2% to an annual rate of 1.553 million units (survey: 1.52m) — the fastest pace since 2007.
- The NAHB housing market index in the US rose from 83 points in September to a record high of 85 points in October (survey: 83).
What I didn’t like
- ‘Preliminary’ retail trade fell by 1.5% in September after falling 4% in August. However, retail spending is still up 5.2% on the year and I suspect the negative retail number (after so many good ones since the virus) is because of Victoria, buyer fatigue and potential anxiety about the changes to JobKeeper that started in October.
- The Bureau of Statistics (ABS) reported that between September 19 and October 3, national payroll jobs fell 0.9% and wages fell 2.2%.
- According to CBA economists “Both Home Buying and Motor Vehicle spending intentions softened a little during September. Spending intentions for Retail, Travel, Health & Fitness, Entertainment and Education tracked sideways.”
- European share markets fell on Tuesday as Italy, Spain and Britain imposed renewed virus restrictions.
The importance of stimulus
This week JPMorgan Chase’s share price gained 3.5% and analysts argued it was because the 10-year US Treasury yield hit a 4-month high on stimulus hopes. In recent years, we’ve learnt how important the yield curve is and rising yields tell us that better economic times are more likely, while falling yields can suggest that there could be a recession around the corner.
Who would’ve thought that we’re actually happy to see rising yields or interest rates? They are coming but not quickly. And if you want to be convinced, watch my interview with Chris Joye on Monday’s TV programme.
The week in review:
- Last week, an attendee to our subscriber-only Boom Doom & Zoom webinar, asked me what my three favourite stocks are going forward. I said I’d look for three with a good one-year outlook. Here they are, and more [1]!
- After Telstra’s Chairman effectively committed to maintaining its dividend at 16 cents a share, Paul Rickard went through the reasons for and against the telco and shared his call [2].
- Here are 3 outdoor leisure stocks [3] that Tony Featherstone maintains are well positioned as people embrace parks and trails.
- Will Qantas, Webjet and Flight Centre come back to glory days soon? Read James Dunn’s analysis [4].
- We had two “Hot” stocks this week: Megaport (MP1) from Julia Lee [5] and Pushpay (PPH) from Michael Wayne [6].
- According to Percy Allan, the most important development in the last week is that the All Ords index is on the cusp again of going bullish [7] on a medium-to-long-term basis.
- In Buy, Hold, Sell – What the Brokers Say, there were 14 upgrades and 5 downgrades in the first edition [8] of the week, while there were 2 upgrades and 2 downgrades in the second edition [9].
- And in Questions of the Week [10], Paul Rickard answered questions about the US election’s effect on the Aussie share market, the weakening US dollar, how to read market depth and investing in the Melbourne apartment market.
Our videos of the week:
- Boom! Doom! Zoom! | October 22, 2020 [11]
- What stocks are the experts buying? Plus, should you gamble on Mesoblast? [12] | Switzer TV: Investing
- What happened to the house price crash? Experts explain [13] | Switzer TV: Property
Top Stocks – how they fared:
The Week Ahead:
Australia
Monday October 26 – CommSec State of the States
Monday October 26 – International trade (September, preliminary)
Tuesday October 27 – CBA credit & debit card spending (October 23)
Tuesday October 27 – Speech by Reserve Bank official
Tuesday October 27 – Weekly consumer confidence (October 25)
Wednesday October 28 – Consumer Price Index (September quarter)
Wednesday October 28 – Provisional Mortality Statistics (July)
Thursday October 29 – International trade price indexes (Sep. quarter)
Thursday October 29 – Quarterly business counts (2019/20)
Friday October 30 – Producer price indexes (September quarter)
Friday October 30 – Private sector credit (September)
Overseas
Monday October 26 – US New home sales (September)
Tuesday October 27 – China Industrial profits (September)
Tuesday October 27 – US Durable goods orders (September)
Tuesday October 27 – US S&P/Case Shiller home prices (August)
Tuesday October 27 – US House price index (August)
Tuesday October 27 – US Consumer confidence (October)
Wednesday October 28 – US International goods trade (September)
Thursday October 29 – US Economic growth (September quarter)
Thursday October 29 – US Pending home sales (September)
Friday October 30 – US Personal income/spending (September)
Saturday October 31 – China Purchasing managers indexes (October)
Food for thought:
“Just as a cautious businessman avoids investing all his capital in one concern, so wisdom would probably admonish us also not to anticipate all our happiness from one quarter alone.” – Sigmund Freud
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:
With the next interest rate decision due on Melbourne Cup Day on November 3, CommSec shared the following chart depicting the Reserve Bank’s cash rate and the 90-day bank bill rate since May 2016, noting that CBA Group economists are forecsating a reduction in the cash rate to 0.10%:
Top 5 most clicked:
- My 3 favourite stocks with a good one-year outlook [1] – Peter Switzer
- Is Telstra now a buy? [2] – Paul Rickard
- 3 outdoor leisure stocks I like [3] – Tony Featherstone
- Will Qantas, Webjet and Flight Centre come back to glory days soon? [4] – James Dunn
- My “HOT” stock [5] – Maureen Jordan
Recent Switzer Reports:
- Monday 19 October: My 3 favourite stocks [14]
- Thursday 22 October: The 3 outdoor leisure stocks [15]
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.