[table “172” not found /]

Ooh ah! Despite some curious curve balls from deflation to dud numbers for US growth and Apple, as well as market-mover Carl Icahn pulling out a “day of reckoning for the market” line, we ended up for the day and the week. That 27-point gain on Friday for the S&P/ASX 200 index wasn’t a bad effort, considering the Dow’s 210-point plunge on Thursday, which was the worst for that market gauge for two months!

For the week, we snuck up 16 points but the Dow was in negative territory on Friday. However, as the end of the month loomed, there seemed to be some rebuying. By the time I finish this early morning communiqué, it should be interesting to see how the world’s most-watched market ends (and this is what happened: the Dow was down only 57 points, which ain’t too bad).

A few weeks back I listed the things that had to work out to give the market the power to head higher. We needed earnings to be better than expected in the US and that has worked out but some big name companies, such as Google (Alphabet), Netflix and Microsoft have disappointed, though Facebook and Amazon showed why world beaters are worth following. And overnight, Exon Mobil reported strongly, which shows the benefit of a company being in both energy and chemicals, with the latter outperforming. That said, some analysts are pondering if the worst is behind energy companies, which would have to be great for the stock market, as this lot have been plaguing the S&P 500 index, which has fed into global stock markets.

I said we needed central banks to deliver, well, the Fed did by not spooking the stock market but the European and Japanese equivalents had forgettable contributions. I also hoped for some better-than-expected economic data and China delivered good news there. However, the Yanks presented first quarter economic growth of only 0.5%, the slowest pace in two years and down a lot from the 1.5% pace seen in December.

A cold snap often hits the first quarter but this really hasn’t been a big issue this year and the outlook does look brighter.

The BBC website says “most forecasters predict the US economy will bounce back in the next quarter, but Chris Williamson of Markit said his company’s own surveys showed only a weak recovery.

Worryingly, the surveys indicate that the malaise affecting the US economy has extended into the second quarter, albeit with the pace of expansion picking up slightly to 0.8%. The surveys also show weakness spreading from manufacturing to services in recent months.”

The comeback in quarter two will be crucial for fighting that “sell in May” tendency, which I have pointed out doesn’t really have a highly worrying reliable record. By the way, unemployment in the US has fallen below 5% and it relies on consumers for two-thirds of its rise. Those ‘shop til you drop’ Yanks increased spending by 1.9% across the March quarter. This is pretty good when you consider it follows the Christmas spending quarter of December.

In Europe, the story has been virtually up and down. Stocks were down on some ordinary company earnings results. You know there’s something wrong when the German Dax was down 2.7%. Against that, economic growth was up 0.6% for the quarter and unemployment was down from 10.4% to 10.2% for the Eurozone.

On growth, the previous quarter was 0.3% and the consensus number was 0.4%, so the 0.6% result was a bottler.

Another negative in Europe was the fall in inflation from 0.2% to flat. If inflation had come with growth, the Europeans might have ignored the ordinary earnings story.

Okay, let’s recap. Company earnings mixed but better than expected, central bank decision average but the most important one – the Fed – got it right and the economic read from Europe to China was pretty good, while the Yanks nailed the job market but overall growth was disappointing.

So how come stock markets have been so positive since mid February? Well, it’s been the turnaround in commodity prices, which my old mate Michael Knox of Morgans predicted and hell, has he got it right!

Overnight, oil was virtually flat around $US45 a barrel and given it went as low as $US25 earlier this year, that’s been an 80% spike! I guess we can thank OPEC’s production freeze talk, the fall in US rig counts (which fell for the sixth straight week where the closure rate is over 50% since oil prices plummeted) and maybe (just maybe) world demand for oil, which is critical to economic growth, is starting to rise.

All up, considering what this week could’ve been like, it’s been pretty damn good!

What I like

• There isn’t an excessive commitment to negativity on stock markets, which is intriguing, with US markets close to all-time highs. I’d expect more, given what happened at the beginning of the year.
• Woolies up 1.8% for the week. I hope this is smoke from a fire we’ll see with their upcoming update.
• Blackmores sticking it to their critics with great results – see my interview with the company’s CEO, Christine Holgate
• Local business credit rose by 0.3% in March. Business credit is 6.5% higher than a year ago, just off the strongest growth recorded in seven years.

What I didn’t like

• Bank of Japan’s ‘do nothing’ decision, which disappointed markets. I hope these guys at the BOJ know what they’re doing.
• News that the Canadian debt ratings agency, DBRS, could put the kibosh on Portugal’s bonds, which could trigger more debt crisis concerns.
• Ahead of the Budget, too many economists are supporting Moody’s view that the Government has to be careful of our debt rating. Most other countries have debt to GDP ratios close to 100%, while we’re nearer to 30%. This makes me wonder who gets jobs at these agencies – nincompoops?
• This headline: Terms of Trade Collapse. The real story is that the terms of trade fell by around 1.8% in the March quarter to a 10½-year low but the fall was bigger in 2014 and 2015 and rising commodity prices will turn this around.
• That deflation number of 0.2% and the negativity it created. Most of the fall was due to a 10% slump in petrol prices and an 11% fall in fruit prices. This deflation drama has been overworked and I’ll be surprised if the RBA cuts rates.
• The weekly ANZ/Roy Morgan consumer confidence rating fell by 4.1 points (3.5%) to 111.7 in the week to April 24. Confidence is down 0.1% over the year and below the average of 112.1 since 2014.
• Macquarie down 5.3% for the week – what’s the story? I’ll be looking at this next week on my TV show.

By the way…

You might’ve noticed that my likes were outnumbered by my dislikes, which makes me a little nervous. And I’m also a tick nervous because of the upcoming Budget, debt ratings agencies, Donald Trump and Brexit but I still think over the course of this year the economic story will pick up and help stocks trend higher, despite volatility. Just get used to it.

Top stocks – how they fared

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The week in review

(click the blue text to read more)

• Charlie Aitken said that the raft of stock earnings reports here and in the US over the coming weeks will give greater clarity on the outlook for the market.
• Tony Featherstone explained why CYBG is a solid long-term investment with or without a takeover. He also gave an update on the takeover target portfolio.
• James Dunn shared five value stocks to consider including Austal (ASB), Alumina (AWC), Peet & Co (PPC), Southern Cross Electrical Engineering Limited (SXE) and Macmahon Holdings (MAH).
• The brokers put Evolution Mining in the good books, but Challenger and CSR didn’t fare well.
• George Boubouras shared his take on the big banks and outlined the challenges that could impact their growth outlook.
• And in Questions of the Week we answered your queries on Qantas and the upcoming budget.

What moved the market

• Surprisingly weaker than expected inflation data led to concerns of deflation and increased expectations of a rate cut on Budget day, driving the Aussie dollar lower 2 cents lower.
• After reporting the first drop in iPhone sales and revenue in over a decade, Apple shares took another hit after billionaire investor Carl Icahn said he no longer has a position. He also said that there would be a ‘day of reckoning’ for the US stock market unless there was some sort of fiscal stimulus. No one likes a spookster!
• And the US GDP figure for the first quarter came in at a weak +0.5% annual growth rate (seasonally adjusted).

The week ahead

Australia

• Monday May 2 – CommSec’s State of the States
• Monday May 2 – Inflation gauge (April)
• Monday May 2 – Home prices (April)
• Tuesday May 3 – Reserve Bank Board meeting
• Tuesday May 3 – Federal Budget
• Tuesday May 3 – Building approvals (March)
• Thursday May 5 – Retail trade (March)
• Thursday May 5 – International trade (March)
• Friday May 6 – Statement on Monetary Policy

Overseas

• Sunday May 1 – China purchasing managers (April)
• Monday May 2 – US ISM manufacturing (April)
• Tuesday May 3 – US New auto sales (April)
• Wednesday May 4 – US ADP employment (April)
• Wednesday May 4 – US International trade (March)
• Wednesday May 4 – US ISM services (April)
• Friday May 6 – US Non-farm payrolls (April)

Calls of the week

• The Bank of Japan made the call not to further expand its economic stimulus measures.
• US clothing company HanesBrands placed a billion dollar takeover bid for Australia’s Pacific Brands.
• ANZ will become the first Aussie bank to process payments through Apple devices with “Apple Pay”.
• And Charlie Aitken made the call that there’s a growing chance of a relief rally in Australia’s battered banks over the next few weeks.

Food for thought

Coming together is a beginning; keeping together is progress; working together is success.

Henry Ford

Last week’s TV roundup

• Aitken Investment Management’s Charlie Aitken explains why he’s a believer in the telco Telstra.
• What’s ahead for some of our top stocks? To discuss, Wilson Asset Management’s Geoff Wilson joins the show.
• The king of charts is back! To lend his technical expertise on the markets, Lance Lai of Accountancy Invest joins Super TV.
• Michael McCarthy from CMC Markets and Shane Oliver of AMP Capital join the show to talk about the budget and the difficulty around our deficit.

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 Western Areas Limited, with an increase in the proportion of its shares sold short by 0.31 percentage points to 8.44%. Primary Health Care went the other way, its short sold position pulling back by 0.92% to 11.18%.

Source: ASIC

My favourite charts

Budget surplus projections

AMP Capital’s Shane Oliver produced this nifty chart showing our Budget surplus projections. He says the perpetual delay in returning the budget to surplus hasn’t threatened Australia’s AAA sovereign rating so far, but let’s hope rating agencies don’t start to lose their patience!

All good things must come to an end – even Apple’s revenue growth!

After a whopping 51 quarters of growth, Apple reported its first year-on-year decline in revenue growth. Much of that drop is attributed to iPhone sales – maybe everyone now has one!

Top 5 most clicked on stories

• Charlie Aitken: Telstra: dividend certainty in an uncertain world
• James Dunn: 5 value stocks to consider
• Charlie Aitken: 2 big weeks of earnings news in the US and Australia
• Roger Montgomery: Undervalued and poised for growth
• Staff Reporter: Buy, Sell, Hold – what the brokers say

Recent Switzer Super Reports

• Thursday 28 April 2016: Big news week
• Thursday 21 April 2016: Investing beyond the noise

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.