[table “126” not found /]
What a wobbly week but I wasn’t expecting too much after we put on 8.8% since September 28, when Glencore scared the pants off our stock market. But let’s keep it in perspective: we’re still up 6.5% in just over a month and that’s after five days this week when we didn’t get the cigar once! The market was off a tick, over 2% for the week.
And let’s face it, some star companies haven’t helped. Woolworths (WOW) had a shocker – what’s happened to its once renowned WOW factor? And it’s high time they named their new CEO. The fact they haven’t found anyone suggests there’s something wrong at the top. I’ll give Gordon Cairns, the new chairman, six months but if nothing positive shows, I’ll dump the company for good and dump on him too!
Dick Smith, ANZ and NAB did nothing to help us keep the faith but good old Macquarie showed the way, with a record first-half profit, which has some speculating we’ll see a $2 billion profit outcome for the year! And then there was Blackmores’ $200.04 share price, after announcing strong quarterly sales and a tie up with Bega Cheese.
October hasn’t been a great month for the Aussie stock market but the Yanks have often started bouncing higher in the month. Shane Oliver of AMP has produced a nice chart showing October spikes but says he wouldn’t be surprised to see a November sell off ahead of a December rally. Have a look at this chart:
[1]This is Shane’s take on stocks for the rest of 2015: “October has lived up to its reputation as a ‘bear killer’ (at least so far!). However, November is unlikely to be as strong. After rising 10% from their September lows, global shares are a bit overbought and due for a correction, particularly with concerns around the Fed and the emerging world remaining. The 2011 analogy, which the US share market has been following reasonably well, also points to the risk of a correction in November. This is likely to impact Australian shares. But after a pull back or consolidation, expect shares to resume their run up into year-end as the typical Santa Claus rally sets in.”
Away from stocks news, that low inflation number over the week has increased the likelihood that the RBA will cut on Cup Day. I think they should, now the banks are set to raise home loan rates between 15 and 20 basis points but Glenn Stevens can be a stubborn coot, so he might decide to wait and see more economic data.
Last week, I liked seeing his Board tipping the September quarter would be a better growth result than what even the RBA expected, but I can top that.
During the week, I did a speech for AMEX and a restaurant full of CEOs and CFOs and I was putting forward my long list of good economic data that most media outlets either ignore or give little exposure to. However, I thought the audience might accuse me of being always optimistic! Who? Me?
So I surveyed seven well known, respected economists to try and pooh pooh the silly idea that a recession might be coming. Yep, even some smart people are telling me this but they’re not economists or anyone trained to guess this kind of thing. This is what the pros told me:
- AMP’s Shane Oliver: 2.75%-3%
- HSBC’s Paul Bloxham: 2.8%
- NAB’s Alan Oster: 2.7%
- St George’s Janu Chan: 2.7%
- Westpac’s Bill Evans: 2.75%
- Colonial’s Steve Halmarick: 2.6%
- BIS Shrapnel Frank Gelber: 3.2%
As you can see, seven out of seven are a long way from negative, recession growth and three are thinking 3% or so is possible by the second-half!
If they’re right, it will be good for stocks and I think we’re all happy about that.
What I liked
- The Newspoll that had Malcolm Turnbull at 63% as preferred PM, which means we now have a leader who a lot of the country likes. This is an economic plus, whether you like Malcolm or not. The revelation made me observe at two speeches I delivered this week that Malcolm actually has a very positive name -Turnbull – suggesting we turn bullish! Bill’s name – Shorten – suggests we go short him, which is not helpful for him or Labor!
- Inflation was a good news story, with the Consumer Price Index (the main measure of inflation in Australia) rising by 0.5% in the September quarter, below expectations. In seasonally adjusted terms, the CPI rose by 0.1%. The annual rate of inflation held steady at 1.5%, which means that real rates of interest are actually higher than what most economists expected and it makes it easier for the RBA to cut rates on Tuesday.
- The Fed looking more bullish and hinting that a December rate rise is a possibility, which suggests they’re comfortable with the US economy. It’s also helped the dollar slide, which is a plus for the economy and, ultimately, stocks.Anything that helps stocks resume their march higher has to be a good thing. The chart below shows the dollar’s dive this week.
[2]- Private sector credit (lending) rose by 0.8% in September – the biggest monthly gain in seven years. Annual credit growth rose from 6.4% to 6.7% – a near 7-year high. Better still, credit (or loans outstanding to business) hit record highs in September, with annual growth at 7-year highs as well!
- This headline: “European shares see best month in six years – up 8%!” It’s especially so as we’ve been recommending Europe as a destination for overseas investment.
- US stock markets refused to sell off this week and had their best month in four years.
What I didn’t like
- US personal income rising by only 0.1% and the slip in the University of Michigan’s consumer confidence reading to 90, which, while a nice number, is still the second lowest of 2015!
- US third quarter growth at 1.5% following the second quarter’s 3.9% but the first quarter was only 0.6%! As these are annualized numbers, they show the US is on a rollercoaster, which I hope heads up in the December quarter or else we could have a disappointing start to 2016. I definitely don’t want to see that.
- New home sales here fell by 4% in September. Sales of multi-units fell by 5.3%, while detached house sales fell by 3.6%. This could be an early sign of the knock on effect of APRA’s insistence that banks make it harder for investors to access loans.
- This week’s fall in stocks here compared to the good Octobers in Europe and the US, which means I’m a bit apprehensive about November, though I will use it as a buying opportunity ahead of a good December. That was my thinking before the Fed hinted it could raise rates in December. That could kill a Santa Claus rally! Playing the stock market is a drama, isn’t it? By the way, the current Fed futures betting on a Fed rate rise in December is 50% and 57% for January, so it’s coming, baby, it’s coming.
What I liked but didn’t like
Of the 68% of S&P 500 firms that have reported to date, 72% have beaten estimates on earnings, which I like. However, only 43% have topped revenue forecasts and this compares to an historical average of 58%. So, the US economy is doing OK but isn’t going gangbusters and I think a lot of that is due to the rising greenback.
For those wondering
Can Blackmores go higher after its announced Bega Cheese joint venture to produce high quality infant formula products? Well, factor in that China is now allowing their citizens to have a 100% increase in their offspring production! That has to be good for the formula that drives their share price.
Top stocks – how they fared
[table “125” not found /]The week in review
(click the blue text to read more)
- I told you why I’ve had a change of heart [3] and want the RBA to cut rates on Cup Day – for the sake of stocks!
- Paul Rickard said Telstra is in the buy zone [4], and investors can be confident that they will receive a fully franked dividend of 31.5c per share in FY16.
- Paul also gave you his take on Woolworths’ shock profit warning and said investors need to be patient [5] for a turnaround.
- The brokers downgraded some of the miners [6] this week, and in our second broker report, Flexigroup was upgraded [7].
- Our Super Stock Selectors [8] liked retailer Harvey Norman and Fisher & Paykel Healthcare.
- Tony Negline told you how to stay on the right side [9] of the disqualified person rule.
- And Christopher Demasi of Montgomery Investment said that while Amex might issue premium cards, its shares are now trading at a discount. [10]
What moved the market
- Wall Street received a boost after the US Fed kept its benchmark interest rate at near-zero levels and upgraded its economic outlook.
- The local market was shocked by Woolies’ profit update, which said first half profits could fall by up to 35%. Dick Smith also cut its full year profit guidance by between $5 and $8 million.
- Negative sentiment on the market followed annual profit reports from ANZ and NAB, which came in lower than expected. The market also raised the chances of a Cup Day rate cut after weaker than expected inflation figures.
- And Blackmores’ shareholders would have jumped for joy after shares hit $200 during intra-day trading on Thursday, after first quarter profits more than doubled and the company announced a joint-venture with Bega Cheese.
The week ahead
Australia
- Monday November 2 – Home value index (October)
- Monday November 2 – Building approvals (September)
- Tuesday November 3 – Reserve Bank Board meeting
- Wednesday November 4 – International trade (September)
- Wednesday November 4 – Retail trade (September)
- Thursday November 5 – Speech by Reserve Bank official
- Thursday November 5 – Speech by Reserve Bank official
- Friday November 6 – Statement on Monetary Policy
Overseas
- Sunday November 1 – China purchasing managers (October)
- Monday November 2 – US ISM manufacturing (October)
- Tuesday November 3 – US Automobile sales (October)
- Wednesday November 4 – US ADP employment (October)
- Wednesday November 4 – US International trade (September)
- Wednesday November 4 – US ISM services (October)
- Thursday November 5 – US Challenger job layoffs (October)
- Friday November 6 – US Non-farm payrolls (October)
Calls of the week
- Tony Featherstone added Challenger and Nufarm to his takeover targets list [11].
- Paul Rickard said Telstra is in the buy zone [4] but that there is no hurry to buy Woolies [5].
- Are you achin’ for some bacon? Well stop, because according to the International Agency for Research of Cancer, processed meat is classified in the same category as smoking and alcohol for cancer risks!
- And China’s Communist Party lifted its one-child policy after more than three decades, and will now allow couples to have two children.
Food for thought
Winners never quit and quitters never win
Vince Lombardi – US football coach
Last week’s TV roundup
- To shine a light on the drivers behind Blackmores’ strong market performance and the growth of the company, CEO Christine Holgate joins the show [12].
- Jas Khara from Boson Managers gives his report card [13] on the US earnings season so far, as well as his views on the financial market.
- Julia Lee gives her take [14] on the stock market, Link’s IPO, and more.
- And in this week’s Super Session we tell you what to look out for when investing in small caps [15].
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 Mesoblast, with a 3.19 percentage point increase in the proportion of its shares sold short to 11.00%. Dick Smith’s short position increased by 1.02 percentage points to 14.07%.
[16]Source: ASIC
My favourite charts
Blackmores believers!
[17]Source: Yahoo!7 Finance
You can’t get a more perfect looking share price chart than this. Blackmores surged to over $200 in intra-day trading on Thursday, before falling back to close at $167.67 on Friday. Have we seen the top?
Does this mean a Cup Day rate cut?
[18]Source: ABS, Fairfax
Expectations are mounting on the RBA to cut rates next week after the release of weaker than expected consumer price index data. ABS figures reported annual inflation of 1.5%, lower than the tipped 1.7%. Underlying inflation – also known as the trimmed mean – rose 0.3% to 2.1% year-on-year. That’s at the lower end of the RBA’s 2-3% target range. Bring on a Cup Day rate cut!
Top 5 most clicked on stories
- Paul Rickard: Telstra is in the buy zone [4]
- Paul Rickard: Woolworths shocks – but why is anyone surprised? [5]
- Peter Switzer: I’ve changed my mind. Bring on a rate cut for the sake of stocks! [3]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [6]
- Staff Reporter: Super Stock Selectors – energy sector and LLC [8]
Recent Switzer Super Reports
- Thursday, 29 October, 2015: Takeover targets [19]
- Monday, 26 October, 2015: Things have changed [20]
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.