Just when we thought the Aussie stock market’s luck and long good run was on wobbly legs, we ripped off the best week in three months! Our S&P/ASX 200 Index put on 233.1 points (or 3.5%), ending the week at 6804.5.
This means we’re only 4.7% off our pre-Coronavirus crash high, which we’re a certainty to beat this year, with the RBA Governor throwing another $100 billion at the economy via its bond buying (or QE plan) announced this week.
Dr Phil Lowe will soon take us to a new high for stocks and property prices with his “whatever it takes” attitude to getting wage increases, unemployment under 5% and his sadly-missed inflation!
More on the local story later. Let’s sum up Wall Street overnight.
As I predicted, the US job numbers were likely to be disappointing, with infection and death rates shocking over January, so you just couldn’t expect great employment stats. But Wall Street still found reasons to be positive, with the NASDAQ and S&P500 hitting record highs overnight.
The Yanks saw 49,000 new jobs (just less than the 50,000 predicted by economists). And while these numbers were poor for the US economy, they were way better than the December ones. These were first reported as a 140,000 loss of jobs but then were revised up to a huge loss of 227,000!
The stock market is generally a forward-looking machine and the bigger stimulus, the reduction in infection rates and the escalation of vaccinations would all be helping to keep stock-buyers happy to keep going longer with equities.
Like us, the US market indices are on track for the best week since November and Adam Crisafulli of Vital Knowledge summed it up neatly on CNBC: “The rally’s three pillars actually got stronger: Q4 earnings continue to dramatically exceed expectations, more stimulus is being poured into the economy, and the vaccination pace is accelerating.”
AMP Capital’s Shane Oliver likes to keep count of company results in the US across reporting season and yep, the news is very good. “The US December earnings reporting season is now about 57% complete, with results remaining strong,” he pointed out. “81% of companies have so far surprised on the upside (compared to a norm of 75%) by an average 19% and 75% have beaten on revenue. As a result, consensus earnings expectations have been revised up to around flat from a year ago, which is up from minus 9% two weeks ago. In other words, earnings are back around pre coronavirus levels.”
And our reporting season now in process is expected to be a ripper as well.
Here’s a chart of infections, deaths and hospitalisations in the US that helps explain US optimism.
Note how hospitalisations and new cases are falling nicely, while new deaths are dropping, albeit at a slower rate.
But the chart and numbers that will really drive economic optimism and stock prices will be the next one, which shows vaccinations worldwide. When these show bigger proportions of populations from the most significant countries of the trading and travelling world are vaccinated, we’ll see a hell of a lot of reopening trade stocks spike to the next level.
As I argued yesterday in our Switzer Report webinar [1] (held every first Friday of the month), these infection and vaccination stats are the key, game-changing ‘economic’ stats I (and influential market players) am monitoring, just like a Labrador watches a sausage on a BBQ!
Back home and the banks led the way. In case you missed it, CBA was up a whopping 6.1% finishing at $88.64, Westpac put on 4.8% to $22.15, ANZ added 6.7% to $25.29 and NAB was a huge 7.2% higher at $25.23.
The miners were strong, with Rio up 2.7% to $113.33 and Fortescue wacked on a big 6.6% to $23.23.
Meanwhile, CSL rose 1.7%, despite coping with currency headwinds. And Afterpay rose 12% to $151.30 with one analyst thinking it’s a $168 stock!!!
What I liked
- In nominal terms, Aussies spent $350 billion on retail items in 2020 ($263 per week per person), up 6.2% on a year ago and the biggest calendar year lift in a decade. CommSec has undertaken detailed analysis of spending at retail sub-groups using unpublished data provided by the Bureau of Statistics.
- Council approvals to build new homes rose by 10.9% in December to 33-month highs of 19,537 units (consensus: 3%). Private-sector house approvals rose by 15.8% (the most in 23 years) to a record high 13,638 units (highest since January 1979).
- The value of alterations and additions approved was up by 8.1% in December to a record $941.6 million.
- The Australian Industry Group (AiGroup) Performance of Construction Index (PCI) rose by 2.3 points to a 3½-year high of 57.6 in January. Readings above 50 indicate an expansion of activity.
- The ‘final’ IHS Markit services purchasing manager index fell from 57 to 55.6 in January. The composite index, which measures combined services and manufacturing output, eased from 56.6 to 55.9 in January. Readings above 50 indicate an expansion of activity.
- The Housing Industry Association (HIA) reported that demand for residential land jumped by 27.7% in the September 2020 quarter to be 62.7% higher than at the same time last year.
- After a strong ‘V-shaped’ economic recovery, the Reserve Bank expects ‘above-normal’ growth through to 2023.
- This from the RBA Governor, Phil Lowe: “Since we last met, the outlook for the Australian economy has also improved. The downturn in Australia was not as deep as we had feared and the recovery started earlier and has been stronger than we were expecting. The outcomes for GDP and the labour market have been at least as good as the upside scenarios we published last year. Employment growth, retail sales and new house building have all been strong and measures of consumer and business confidence have also improved. This does not disguise the fact that we still have a fair way to go.”
- And this too from Dr Phil: “Our central scenario is for the upswing in the Australian economy to continue, with above-trend growth over the next couple of years. GDP is expected to increase by 3½ per cent over both this year and 2022. Taking into account the recovery so far, we are expecting the level of GDP to return to its end-2019 level by the middle of this year, which is 6 to 12 months earlier than we previously expected.”
- The trade surplus rose by $1.77 billion to $6.785 billion in December (consensus: $8.75 billion surplus). Australia has posted 36 successive monthly trade surpluses. Exports lifted 2.8% in December with imports down 2.4%. Rural exports rose 18.4% – the biggest lift in 25 years. Net exports are expected to detract around 0.2 percentage points from December quarter economic growth (or GDP).
- In the US, the ISM services index rose from 57.7 to 58.7 in January (survey: 56.7). The ‘final’ Markit services purchasing managers’ index rose from 54.8 to 58.3 in January (survey: 57.4). MBA mortgage applications rose by 8.1% last week.
- US factory orders rose 1.1% in December (survey: 0.7%).
- The ISM manufacturing index eased from 60.5 to 58.7 in January (survey: 60). The ‘final’ IHS Markit factory index rose from 57.1 to 59.2 in January (survey: 59.1). Construction spending rose 1% in December (survey: 0.9%).
What I didn’t like
- Retail trade fell by 4.1% in December after rising by 7.1% in November but compared with a year ago, retail trade was up by 9.6%!
- Exports to China are down 2.1% on a year ago – the biggest annual fall in 4½ years.
- In the US, job cuts (as reported by Challenger) rose from 77,030 to 79,552 in January (survey: 65,000).
Drink to this!
Despite China’s anti-Aussie bans on our wine in November, Wine Australia reported that the value of Australian wine exports fell by 1% to $2.89 billion in December from a year ago. But the value of exports to Europe surged 22% to a decade high of $704 million. And there was a 0.5% lift in export volumes to 747 million litres, driven by a 19% lift in UK volumes to 266 million litres – the biggest destination by volumes.
Wouldn’t it be nice if we could stick it to China and find other buyers for our banned or tariffed exports?
The week in review:
- I put myself to the test when researching my article this week, first searching for stocks that have 10% upside. I found 29! Ramping up my test to 20% plus, I found 6 top 100 stocks with 20% upside. And here they are [2]!
- Paul Rickard highlighted some great news for dividend hungry shareholders: compared to last year, bank dividends are set to soar this year [3].
- We’re looking at new trends this year for our subscribers and one that we’ve identified is the increasing prominence of electric vehicles (EV). Here’s an update from Maureen Jordan [4].
- James Dunn looked at how the Aussie dollar affects share prices and which shares are affected by currency rises and falls [5].
- Here are 3 stocks [6] that Tony Featherstone believes will continue to benefit from the rise in spending on gifts and incentives.
- Our ‘HOT’ stocks were back this week, with Julia Lee selecting Incitec Pivot [7] and Michael Wayne selecting Audinate [8].
- In Buy, Hold, Sell – What the Brokers Say this week, there were 14 upgrades and 14 downgrades in the first edition [9], and 10 upgrades and 9 downgrades in the second edition [10].
- And in Questions of the Week [11], Paul Rickard answered questions about CBA, investing for grandkids, Tabcorp and the Magellan Partnership Offer.
Our videos of the week:
- Webinar: Stocks that might move before reporting season [12]
- Reddit/ GameStop! Local shorted stocks that our experts like: WEB, A2M & ING! [13] | Switzer TV: Investing
- Will the 30% house price rise be killed off? Is this boom believable? [14] | Switzer TV: Property
Top Stocks – how they fared:
The Week Ahead:
Australia
Tuesday February 9 – Weekly consumer sentiment index (February 7)
Tuesday February 9 – Weekly CBA card spending (February 5)
Tuesday February 9 – NAB Business survey (January)
Wednesday February 10 – Monthly consumer sentiment (February)
Wednesday February 10 – Building approvals (December)
Overseas
Monday February 8 – US Inflation expectations (January)
Tuesday February 9 – US Small business optimism index (January)
Tuesday February 9 – US JOLTS job openings (December)
Wednesday February 10 – Speech by US Federal Reserve chair
Wednesday February 10 – US Consumer prices (January)
Wednesday February 10 – US Wholesale inventories (December)
Wednesday February 10 – US Monthly budget statement (January)
Wednesday February 10 – China Inflation (January)
Thursday February 11 – US Weekly jobless claims (February 6)
Friday February 12 – US Consumer sentiment (prelim, February)
Saturday February 13 – China new vehicle sales (January)
Food for thought:
“Learn everyday, but especially from the experiences of others. It’s cheaper!” – John C. Bogle
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 recent short squeeze in the US, Investopedia asked its readers how their trust in the markets has changed compared to six months ago, with 42% responding that they trust the markets less:
Top 5 most clicked:
- 6 top 100 stocks with 20% upside [2] – Peter Switzer
- Bank dividends set to soar in 2021 [3] – Paul Rickard
- 3 gift stocks that keep on giving [6] – Tony Featherstone
- My ‘HOT’ stock: Buy Incitec Pivot [7] – Julia Lee
- The next big thing: stock watch — electric vehicles [4] – Maureen Jordan
Recent Switzer Reports:
- Monday 01 February: 6 top 100 stocks with 20% upside [15]
- Thursday 04 February: 3 global gift card stocks [16]
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.