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Firstly, hello from London, where shoppers are out in good numbers and the weather is far from cold. After a disappointing week for stocks that was driven by speculators, the real world changed attitudes on Wall Street. So expect positivity and jingle bells next week but more on that later.
Let’s recap the week that was. Let me confess that I wrote what follows before the US job numbers were released but I will add in some additional thoughts after seeing what’s going on in the Yanks’ job market.
One central banker disappointed stock market speculators, while another remained consistent and stocks fell. However, is this truly a worrying sign for investors? In fact, it could be the opposite and this is my takeout from this week’s action, which confirmed my suspicion that Wall Street will determine whether Santa Claus comes to town for Christmas.
That said, looking at the overall run of economic data, I’m still comfortable being a dip buyer, with my only real concern something I can’t fully comprehend (no one can!) and it’s the week to week course of commodity prices. I know they’ll eventually head up and I think we’ve seen the worst of their falls. As long as we ultimately see global economic growth pick up, then it’s OK to be in quality resource stocks.
The economy holds the key and that’s why the European Central Bank’s Mario Draghi disappointed the market with his latest stimulatory efforts. The drivers of stock markets wanted more done for the Eurozone economy but Draghi pulled short of expectations so the economic bang for his buck (or euro, to be precise) is seen as being too small.
European stock markets dropped 3% and Wall Street followed suit. Part of that US market fall relates to the expectation that if the US economy has to cope with an interest rate rise soon, which could slow down their economy, then it would’ve been better if Europe’s economic outlook was going to be stronger.
The only positive message from this Draghi move might be that he thinks the Eurozone economy is stronger than the market consensus believes so it wasn’t him being bullied by his German colleagues, who hate this loose monetary policy, as the market seems to suspect.
Well, the US job-creation performance remains strong with 211,000 positions created in November, which beat expectations. There were even revisions higher to September and October! Unemployment remained at 5% and wages data indicated there were rises there too.
And while this is great news to the most important economy in the world right now, what I liked was the 300-point plus reaction on the Dow Jones index. I like a rising stock market any time but I love it when it happens with just about everyone in the US now expecting the Fed to raise rates on December 16, following this labour market data.
What I liked
- That US employment report and the market reaction!
- Despite the doubters, I liked that 0.9% growth number for the September quarter, which the Yanks would multiply by four and crow about a 3.6% pace expansion!
- The RBA decision of no change on Tuesday – I’m at one with Glenn Stevens now.
- The local retail rise of 0.5% in October. Now sales are up 3.9% on a year ago, while department store sales soared by 3.5% in the month, which partly explains Myers’ share price spike.
- Over the past year, a record 994,900 tourists came to Australia from China, up 21.5% over the year. Tourists from China and Hong Kong rose to a record 1,212,800 over the past year, up 18.4% over the year. This is the dollar at work and shows our relationship with China doesn’t have to be simply iron ore!
- US factory orders rose 1.5% in October, near forecasts.
- There were 98,639 new vehicles sold in November, up 6.9% over the year. In the year to November 2015, a record 1,152,601 new vehicles were sold.
- The ADP Employment report showed that 217,000 private sector jobs were created in November, above forecasts for a 190,000 gain in jobs, which was the best reading in five months.
- Household consumption rose by 0.7% in real terms in the September quarter to be up 2.7% over the year. Nominal spending in the year to September rose by 4.2%.
What I didn’t like
- This headline: Sydney home prices record biggest slide in five years, especially when the true story was that the CoreLogic RP Data Home Value Index of capital city home prices fell by 1.5% in November to stand 8.7% higher over the year, while the Sydney drop was, wait for it, 1.4%! And you wonder why I pick on media beat up merchants, who actually are beat down bastards!
- The ISM manufacturing index fell from 50.1 to a six-year low of 48.6 in November (forecast 50.5) but the Markit gauge lifted from 52.6 to 52.8. So the latter result reduced my negativity on the ISM number.
- The Chicago Purchasing Managers Index fell from 56.2 to 48.7 in November, well short of expectations near 54. It looks like the higher greenback is affecting manufacturing more than services, which is to be expected.
My hope
Anyone who knows my work also knows that I hate how easily the media goes along for the ride with doomsday merchants, negative economists, short-selling fund managers and even fund managers who talk their book. Long-term investors need economies worldwide to get to where the US economy is but remember, Europe and Japan started QE later than America, so they’ll need more time.
That said, I think the good guys, who believe in a slowly improving global economy, which will underpin a slowly improving stock market, are holding all the aces.
My money is still on the central bankers. The speculators can go to you know where!
Top stocks – how they fared
[1]The week in review
(click the blue text to read more)
- Even though I do like a Santa Claus rally, I told you why I’m not too fussed either way [2] because eventually, my chickens will come home to roost!
- In the first of a three-part series, Paul Rickard tells you how to invest for your kids and grandkids [3]. It mightn’t sound like the best stocking filler, but they’ll thank you eventually!
- James Dunn was in the festive spirit this week and gave his top retail stocks for Christmas [4], including JB Hi-Fi (JBH), Harvey Norman (HVN) and Myer (MYR).
- Gary Stone gave his analysis of the S&P500 and said it’s shaping up to make another attempt at a new, all-time high [5].
- Our Super Stock Selectors [6] liked 360 Capital Industrial Fund (TIX) and AP Eagers (APE).
- Charlie Aitken said Link Administration (LNK) [7] is a structural grower in a structural growth industry. Having listed just over a month ago, it has performed pretty well already.
- Tony Featherstone said Westfield Corporation (WFD) and Goodman Group (GMG) are two well-positioned A-REITs [8].
- Paul Rickard recapped the performance [9] of our model income and growth oriented portfolios – down 0.50% and up 3.43%, respectively – for the calendar year.
- The brokers put JB Hi-Fi (JBH) and Myer (MYR) in the good books [10]. In our second broker report [11], Beadell Resources copped a downgrade.
- Technical expert Graeme Colley looked at the durability of income streams [12] for retirees.
What moved the market
- Investors were disappointed with the new monetary stimulus measures announced by the ECB, with European shares recording their largest fall in four months.
- Further weakening in commodity prices hit the local market.
- Shanghai shares also rose on increased expectation of further monetary stimulus, after November’s weak manufacturing activity data.
The week ahead
Australia
- Monday December 7 – Job advertisements (November)
- Tuesday December 8 – Weekly Consumer sentiment
- Tuesday December 8 – NAB Business survey (November)
- Wednesday December 9 – Consumer confidence (December)
- Wednesday December 9 – Housing finance (October)
- Thursday December 10 – Employment/unemployment (November)
- Friday December 11 – Lending finance (October)
Overseas
- Monday December 7 – US Consumer Credit
- Tuesday December 8 – China trade (November)
- Wednesday December 9 – US Wholesale sales (October)
- Wednesday December 9 – China inflation (November)
- Friday December 11 – US Retail sales (November)
- Friday December 11 – US Producer prices (November)
- Friday December 11 – US Consumer sentiment (December)
- Saturday December 12 – Chinese economic indicators (November)
Calls of the week
- Facebook founder Mark Zuckerberg and his wife Priscilla Chan pledged to give away 99% of their Facebook shares in a letter [13] to their baby daughter, Max. The donation amounts to about US $45 billion and will go to various charities. A billion-dollar baby!
- Woolworths made the call to escalate the war between Coles and Campbell Arnott’s by pricing the beloved ‘bickie with tea’ – the Tim Tam – for $2.50 compared with Coles’ price of $3.65. Woolworths cashed in on the lowered prices after Coles lost its rights to six varieties of Tim Tams after refusing to pay hiked prices of up to 10% on a variety of items.
- Former Olympic athlete, Oscar Pistorius, was found guilty of murdering his wife Reeva Steenkamp in 2013 after an appeals court overturned his manslaughter verdict. He will be resentenced next year.
- And in politics, former industry minister Ian MacFarlane made the call to switch party rooms from the Liberals to the Nationals.
Food for thought
“Only those who dare to fail greatly can ever achieve greatly.”
― Robert F. Kennedy, American politician.
Last week’s TV roundup
- Are the settings right for a Santa Claus rally? Paul Rickard and yours truly discuss this – and more – on Super TV [14].
- To help us decipher what the charts are saying about the markets, Lance Lai from Accountancy Invest and John Bly from LBA Haynes Strand join the show [15].
- What can investors expect in the year ahead? Bell Direct’s Julia Lee speaks to Marty Switzer about global markets and how she’s investing right now [16].
- And for the final time in 2015 [17], FN Arena’s Rudi Filapek-Vandyck joins the show to talk about his position on markets right now.
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, one of the biggest movers was Vocus Communications, with a 1.74 percentage point increase in the proportion of shares sold short to 10.19%. Slater and Gordon had a 2.74 percentage point decrease in the amount of their shares sold short, to 12.75%.
[18]My favourite charts
SUVs – the new black
[19]CommSec says that sports utility vehicles are the new black, with almost 404,000 of them sold over the past year. That’s one in three sold! In other good news for the economy, a record 1,152,601 vehicles were sold in the year to November.
We’re spending more on health and education
[20]Health, education, housing and utilities are the new focus for consumers. The chart shows that these essentials take up 35% of total household spending. Food, clothing, alcohol and tobacco on the other hand, were at record lows.
Top 5 most clicked on stories
- Charlie Aitken: A structural growth stock [7]
- Peter Switzer: I’m not waiting for Santa [2]
- Charlie Aitken: How to play the baby boom [21]
- Paul Rickard: Investing for your kids or grandchildren [3]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [10]
Recent Switzer Super Reports
- Thursday, 3 November, 2015: An IPO that is paying off [22]
- Monday, 30 November, 2015: Santa is coming [23]
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.