The March quarter was three months of trading for the true believer stock player and it was fitting that Friday ended in the black or green, depending how you see it. The S&P/ASX 200 Index was up 5 points but over the week the market measure was down 14.5 points or 0.2% to finish at 6180.7.
But forget about the negative and let’s look at the performance of our market for the March quarter, as it was the best since the GFC-rebound year of 2009! It was the September quarter and I remember it fondly, as I started ‘talking up’ stocks after the US Government heavies and the Fed under Ben Bernanke orchestrated the rescue plan for the US economy, major banks, insurers and industrial players such as auto-makers.
My biggest gamble “buy the dip” call started in December 2008 but I didn’t stop ‘losing hair’ until early March 2009. That was a 54% rebound from March 6 to December 2009. And do you think I saw a bit of champagne in those nine months?
Back to this week and it’s significant that we recognise a great quarter, where stocks rose 9.5%! I thank the AFR’s Will McInnes for noting this significant milestone of three months of stock-playing, just as an inverted yield curve is trying to ruin the party! And that’s why our week was negative, with the stock market losing about $20 billion of market cap on Monday alone.
Miners, good reporters from reporting season, big liquid companies and the WAAAX group of ‘techie’ stocks have helped over the quarter as well.
Let’s look at these WAAAX stocks. Wisetech was up 40.16%, Appen 78.3%, Afterpay Touch 72.8%, Altium 55.7%, and Xero put on 16.8%. This showing should be remembered when the inevitable sell offs happen because they’ll always be over-hit but it’s likely that they’ll be big rebounders.
Helping all this resurgence of stocks was the righting of the wrongs that caused the horror December quarter, which for us actually started in late August.
The Fed promising to raise interest rates two or three times in 2019, the Trump trade war threat and slowing global economic outlook news before the EU and China put their hands up for stimulus, on top of the balls up that has been Brexit, all explained the huge sell off. The US stock market saw a 20% fall intraday, which brought out bear market fear and loathing.
This six-months chart shows the fall and rise of the S&P/ASX 200 index but as it’s red it means we’re down for the six months, which is worth noting.
Source: au.finance.yahoo.comBut that was then, this is now and overnight Wall Street remains positive. That’s five days in a row since the US bond market produced a negative or inverted yield curve, which I told you on Monday isn’t necessarily an immediate market-crusher. Sure, it can herald that a recession is coming but it could be two years off and I didn’t need the bond market to tell me that. In fact, I’ve been telling you for at least two years that 2020 and 2021 would be potentially worrying years and the market could tend towards the negative in 2019.
That said, the third year of a US Presidency, Donald Trump’s need to avoid a recession and stock market crash before the 2020 US election helps me remain long stocks. But with the Trumpster, you really can’t be complacent. Despite another Brexit reject vote for poor old Theresa May, the UK’s PM on death row, the Yanks got excited about positive trade deal news. Bless Donnie’s trade play!
Over I bet, a scrumptious steamed dim sim and Peking Duck (do they call it Beijing Duck in China?) dinner, progress was made if you can believe the US Treasury Secretary, Steve Mnuchin. He called it a “productive working dinner” where the Chinese apparently gave ground on issues such as forced technology transfer. Forced technology transfer occurs when foreign multinational companies have to provide strategically significant technology to an indigenous entity they do not control in order to gain access to the massive Chinese market.
In simple terms, for say a US company, to gain access to the Chinese consumer market they have to allow a Chinese entity or firm to access their intellectual property as a price! If it looks like blackmail to you, you get no argument with me or Donald.
I reckon the market will go higher on a trade deal and I’m not alone but I’m not sure how long it can help the US and then our stock market go higher.
“There is still some upside for the market” on the trade front, said Arian Vojdani, investment strategist at MV Financial. “That shadow still looms over this market. You see a lack of conviction in the market when it comes to any type of outcome because there is so much back and forth on that.” (CNBC)
I guess the leg up after a trade deal is inked will depend how mad the stock price surge is after the news breaks.
Away from the trade deal, the focus going forward will be the flow of economic data and earnings season for the first quarter in the US. At this stage, CNBC reports that “the Atlanta Federal Reserve’s GDPNow tool forecasts economic growth of 1.5 percent for the first quarter, well below the 2.2 percent print for the fourth quarter of 2018.”
And earnings for the S&P 500 group of companies is tipped to be down 3.7% for the year. If this proves to be too negative and economic news is better than expected, we could see a bounce in stock prices to May, which is often a testing time for stock rallies.
But you have to like what you’re seeing now – stocks-wise – or you are very hard to please.
What I liked
- Private sector credit rose by 0.3 % in February after a 0.2% rise in January. And while annual credit growth fell to a five-year low of 4.2% in February, this was affected by negative months earlier in the 12-month period.
- Annual business credit growth rate rose to a 2-year high of 5.3%.
- According to the Department of Industry, Innovation and Science, Australia’s export earnings are forecast to hit a fresh record-high of $277.8 billion over the year ended 30 June 2019, up from a revised $227.5 billion over the year ended 30 June 2018.
- Employment rose by 68,000 in the three months to February after a gain of 54,800 in the previous three months. Over the past 12 months, 283,600 people found jobs.
- Job vacancies rose by 1.4% to a record 245,300 in the three months to February. Vacancies are up by 9.9% on a year ago.
- Despite two quarters of falling engineering construction work, there is still just over $66 billion worth of engineering work remaining to be done – up 35% in a year.
- The Ifo business climate index in Germany rose from 98.7 to 99.6 in March, the first rise in seven months. It’s still not strong but it’s getting better.
What I didn’t like
- Total household wealth (net worth) fell by 2.1% to $10,177.9 billion in the December quarter. Over the year to December, net worth fell by 1.3%. In per capita terms, wealth fell by $10,198 in the December quarter to $404,320 but the stock market sell off and the house price slide explain this pretty small fall.
- Engineering construction work done fell by 4.1% in the December quarter, after falling 5.5% in the September quarter. Work done is down by 6.6% from a year ago.
- There were 5.07 million passengers carried on regular flights in January 2019, a decrease of 0.2% on January 2018. This was the second consecutive monthly decrease in the number of passengers taking domestic flights but they are from record highs and the falls are small.
- The weekly ANZ-Roy Morgan consumer confidence rating rose by just 0.1% to 111.8 points but consumer sentiment remains below both the average of 114.3 points held since 2014. Consumers’ views on their finances in the year ahead fell by 4.1 points to 120.2 points – the lowest level in 29 weeks.
- US consumer confidence fell from 131.4 to 124.1 in March (consensus 132). Housing starts fell 8.7% in February after rising 11.7% in January.
- GDP growth in the US was revised down by 0.4% to an annualised growth rate of 2.2% (consensus: 2.3%) in the December quarter. It’s OK but I’d like it higher.
RBA-sanctioned tax cuts are coming
CommSec’s Craig James is preparing us for a giveaway Budget next Tuesday and this is what he sees in his economic crustal ball. “The budget accounts are effectively balanced and surpluses are in prospect in coming years, and the Government is likely to unveil measures to stimulate the economy and lift lagging growth rates.”
And it’s all endorsed by the Reserve Bank, with the Assistant Governor Luci Ellis saying low consumer spending is not driven by falling house prices or weak wages but because the ATO is collecting too much tax! “Income payable – the things deducted from gross income to calculate disposable income – increased by nearly 6 per cent in 2018,” Dr Ellis said. “This was significantly faster than growth in gross household income.” (abc.net.au)
This speech was virtually saying the RBA wants to see tax cuts to make it easier for it to stay on hold with interest rates! Ahead of an election, this is good news for PM Scott Morrison.
Hot off the press
President Trump’s main economics advisor, Larry Kudlow has called on the Fed to cut interest rates by 0.5% but he says the US economy is doing OK!
And Uber’s rival, Lyft, listed overnight and it was good news for it, and Uber for when it goes public later this year. “Lyft’s shares rose more than 12 percent in their first few hours of trading after opening at $87.24, far above the public offering price of $72,” The New York Times reported.
The Week in Review:
- A reliable indicator of a looming recession is an inverted yield curve, but does this mean a recession has to happen? And should you still buy stocks? [1]
- Read Paul Rickard’s review of the Pengana Private Equity Trust (PE1). [2]
- James Dunn [3] put 4 key Aussie cancer stocks under the microscope.
- With its sole focus now on gloves and other protective equipment in the healthcare and industrial sectors, Tony Featherstone [4] looked at Ansell’s recent performance and outlook for the future.
- Alarming headlines about a per capita recession surfaced last week but respected economist Michael Knox from Morgans (with a little help from me) [5] explained that the economy is better than expected and why the GDP number can’t be trusted.
- Equity Analyst Julia Lee [6] from Bell Direct explained why she regards Newcrest Mining (NCM) as a buy and Sydney Airport (SYD) a sell.
- There were 7 upgrades and 11 downgrades in the first Buy, Hold, Sell – What the Brokers Say [7] of the week, while there were 3 upgrades for St Barbara (SBM) and four downgrades in the second edition [8].
- In Questions of the Week [9], Paul Rickard and Graeme Colley answered readers queries about the Aussie dollar, the definition of a superannuation “spouse”, “averaging” and Resmed.
- Our Hot Stock [10] for the week was Bapcor
Top Stocks – how they fared:
What moved the market?
- The yield curve turned negative late last week, with repercussions being felt locally this week.
- Trade talks resumed with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin meeting with Chinese officials in Beijing.
The Week Ahead:
Australia
Monday April 1 – CoreLogic home prices (March)
Monday April 1 – NAB Business survey (March)
Monday April 1 – AiGroup & CBA purchasing managers (March)
Tuesday April 2 – Federal Budget
Tuesday April 2 – Reserve Bank Board meeting
Tuesday April 2 – Building approvals (February)
Wednesday April 3 – Retail trade (February)
Wednesday April 3 – International trade (February)
Wednesday April 3 – AiGroup & CBA purchasing managers (March)
Wednesday April 3 – New vehicle sales (March)
Overseas
Monday April 1 – China Caixin manufacturing gauge (March)
Monday April 1 – US Retail sales (February)
Monday April 1 – US ISM Manufacturing index (March)
Monday April 1 – US Construction spending (February)
Tuesday April 2 – US Durable goods orders (February)
Wednesday April 3 – China Caixin services gauge (March)
Wednesday April 3 – US ADP employment change (March)
Thursday April 4 – US Challenger job cuts (March)
Thursday April 4 – US ISM Non-manufacturing index (March)
Friday April 5 – US Employment (March)
Food for thought:
“Spend each day trying to be a little wiser than you were when you woke up.” – Charlie Munger
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:
AMP Capital’s chief economist Shane Oliver published the following chart showing the history of yield curve inversions and recessions since 1985 (false signals circled):
Source: NBER, Bloomberg, AMP Capital
Top 5 most clicked:
- Bond market tips US recession is coming. Should you cash up now? [1] – Peter Switzer
- Buy, Hold, Sell – What the Brokers Say [7] – Rudi Filapek-Vandyck
- Keeping up with the Future Fund – investing in Private Equity [2] – Paul Rickard
- 4 key Aussie cancer stocks under the microscope [3] – James Dunn
- My Hot Stock – Bapcor (BAP) [10] – Maureen Jordan
Recent Switzer Reports:
Monday 24 March: Recession talk, cancer drugs + product review [11]
Thursday 28 March: Safety gloves, understanding economics and stock tips! [12]
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.