|Data for week commencing 15 June 2020|
Positivity for stocks continues to surprise, with fund managers and other professionals concerned that retail investors and their appetite to buy great companies at low prices (hopefully to hold them until the underlying businesses come good to justify their now higher share price) is making their lives really challenging.
The only worrying curve ball out there remains the Coronavirus. This headline from CNBC has taken the wind out of Wall Street’s sails: “Coronavirus updates: Dr Fauci is frustrated Americans aren’t taking virus seriously…”
And giving us an insight into what might happen if the reopening of the economy isn’t as good as hoped for, in the US states such as Florida, Arizona and South Carolina where virus infections are picking up, Apple has closed 11 stores temporarily.
Ahead of the close, the Dow Jones index was down about 0.8%, meaning stocks were set to be up for the week, so the worry factor is under control. And on the plus side, the optimism about the global economic outlook actually pushed the oil price over US$40 a barrel and energy stocks went higher.
Unbelievably, the IPO market is booming at the moment in the States, with online grocery delivery company Albertsons on a roadshow before an expected float for around $1.3 billion.
Another plus for stocks was the reports that China was to start purchasing US agricultural products as per the phase-one trade deal, which put a lot of this Trump-China slanging into a less worrying perspective.
Helping to offset the virus-economic impacts has been the Federal Reserve chair, Jerome Powell, who gave testimony to the House of Representatives this week and warned about removing stimulus measures too quickly. Powell said the Fed would keep its “foot on the gas” but told Congress “that you may find that there’s more for you to do as well.”
There was also a lot of positivity around the Fed committing to a corporate bond buying program.
Wall Street also liked talk that the White House stimulus package included a trillion dollars for infrastructure.
On the local level, economic data was mixed, with the rise in the jobless rate from 6.2% to 7.1% hard to like. But this was old news so I want to see the June number when we see the impact of the re-opening of the economy. If this doesn’t create positivity, then I’ll give into a measured negativity on our outlook. (I’m not expecting that, by the way.)
What I thought was worth singling out was CBA’s Household Spending Intentions numbers. According to the bank’s economists, “We are seeing some big changes taking place in household spending that provide early signs of stabilisation and recovery in some parts of the Australian economy, largely driven by changes in government policy.”
To the stock market and we’ve now gone up seven weeks out of eight, with the S&P/ASX 200 up 1.6% to 5942.6.
S&P/ASX 200 Index for 5 days
Retailers spiked on great retail numbers with a record 16.2% rise in May, with Wesfarmers up 1.4% but a smaller fish in Adairs up 10.5% in a day to $2.31.
Followers of our Switzer TV Investing show might be happy that at long last Healius is showing some form, with a 21.33% gain for the week but it does have a possible $500 million sale in the offing that’s helping the share price. Julia Lee has been supporting this company of late and she again was on the money.
Sectors-wise and IT continues to be in the good books, with tech stocks up 7.84% for the week, while energy gained 3.54% and telcos added a tick over 3%.
Miners didn’t have a great week but the outlook for the global economy has to be a plus for miners so some of this softness for their shares would be a bit of rotation and profit-taking. The chart of a company, such as Evolution Mining (EVN), explains why profit-taking to use the money made to buy, say, tech stocks could be going on now.
Gold and EVN was the place to be over the past six Coronavirus months, so taking a bit of profit clearly makes a lot of sense. By the way, Goldman Sachs has upgraded its forecasts for gold, blaming excessive money supply growth that debases currencies. The investment bank says gold prices historically rise in the early stages of an economic recovery.
What I liked
- The US stock market has rebounded 38% since March 23, while we have comeback nearly 31% but those guys have the FAANG stocks, which give their stock market index a turbo charge.
- The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.5% (the 10th lift in 11 weeks) to 97.5 points (long-run average since 1990 is 112.9). Sentiment is up by 49.3% since hitting record lows of 65.3 points on March 29 (lowest since 1973).
- Consumer views on family finances over the next year (‘future finances’) rose by 1.4% to 15-week highs of 21.7 points.
- According to the Commonwealth Bank (CBA), card spending in the week to June 12 was up 6.2% on a year ago, compared to a 5.2% lift for the week ended June 5. Online spending rose 7.9% (previous week: +8.5%) and in-store spending was up 5.9% (previous week: +3.9%) over the period.
- The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) today lifted its forecast for Australian farm exports by 9.3% to $47 billion in 2019/20 (from a previously forecast $43 billion in March). Meat and live animal exports for 2019/20 are estimated to hit record highs of $17.5 billion, up by 13.1% from a year ago.
- ‘Preliminary’ retail trade rose by a record 16.3% in May (highest in 38 years of records) after falling a record 17.7% in April and rising 8.5% in March.
- Federal, State and Territory Governments have committed $295 billion (or around 15% of GDP) in support and stimulus measures in the wake of COVID-19
- US housing starts rose from 934,000 to 974,000 in May (forecast 1.095 million). Building permits rose from 1.066 million to 1.22 million (forecast 1.228 million). Mortgage applications in the latest week were up 8% on a year ago to the highest level since January 2009.
- Hopes for $1 trillion in infrastructure spending in the US and optimism for the global economy offset concerns about a lift in the number of virus cases in China.
What I didn’t like
- The Fair Work Commission awarded an increase of 1.75% in the minimum wage. The minimum wage will be $753.80 per week, or $19.84 per hour. It could’ve been delayed until we see how the economy is recovering.
- Australia’s population increased by 349,833 people over the year to December 2019 to 25,522,169 people. Overall, Australia’s annual population growth rate eased from 1.43% to 1.39% – the slowest pace in 13½ years. Population growth is good for the economy’s growth, so a slowdown is understandable with COVID-19, but we do need growth.
- Employment fell by 227,700 in May after falling by a record 607,400 in April (previously reported as 594,300 decline). Full-time jobs fell by 89,100 and part-time jobs fell by 138,600. That said, it was an OK result compared to other Western economies.
- Unemployment rose from 6.2% to 7.1% in May. It was the highest jobless rate in almost 19 years (since October 2001. This too is an OK result compared to other countries such as the US.
Go for it baby!
You can’t blame the lockdown and the ‘home detention’ for this one yet but I do look forward to seeing the numbers for babies born late this and early next year, given that so many people have been ‘on the job’ at home rather than at work. The latest number out says that there were 305,800 Aussie babies born in the year to December and that’s a 2-year high!
Join our new weekly video meeting called Boom! Doom! Zoom every Thursday at 12pm AEST using this link. The link to join will remain the same each week, so be sure to add it to your favourites.
The week in review:
- I looked at what long-term investing means through the example of the Commonwealth Bank over the years.
- There are almost no investments with “very little risk”, but this week Paul Rickard put together five candidate stocks where the downside risk is not as high.
- Team Australian is worth backing. We beat the virus, now we reap the rewards. In his article this week, Charlie Aitken encouraged you to consider some more domestic cyclical exposure in your portfolios.
- The world’s need for battery metals – in particular, lithium – is only going to grow, and Australian companies will play a major role. Here are 4 lithium stocks to keep on your radar.
- Volatile markets are buying opportunities for active investors. Here are the top stocks to consider in the tech, banking, tollroad, mining and fast-food sectors.
- In Buy, Hold, Sell – What the Brokers Say this week, there were 12 upgrades and 14 downgrades in the first edition, and 9 upgrades and 10 downgrades in the second edition.
- In Questions of the Week, Paul Rickard answered your questions on bank hybrids, Telstra, the maximum holding in a stock and a segregated SMSF.
On our YouTube channel this week:
- Boom! Doom! Zoom! | June 18, 2020
- 4 speculative stocks, 5 income stocks and 2 virus-resistant funds! – Switzer TV: Investing
- Grizzly bear on property prices is getting less grizzly! – Switzer TV: Property
Top Stocks – how they fared:
The Week Ahead:
Monday June 22 – Speech by Reserve Bank Governor
Tuesday June 23 – Preliminary trade (May)
Tuesday June 23 – CBA ‘flash’ purchasing managers survey
Wednesday June 24 – Preliminary mortality (March quarter)
Wednesday June 24 – Skilled vacancies (May)
Thursday June 25 – Finance & wealth (March quarter)
Thursday June 25 – Job vacancies (May)
Thursday June 25 – Detailed employment (May)
Friday June 26 – Australian Business 2018/19
Monday June 22 – China Loan prime rates (June)
Monday June 22 – US Existing home sales (May)
Tuesday June 23 – US ‘flash’ purchasing managers survey
Tuesday June 23 – US New home sales (May)
Tuesday June 23 – US Richmond Federal Reserve index
Wednesday June 24 – US House price index (April)
Thursday June 25 – US Durable goods orders (May)
Thursday June 25 – US GDP (March quarter)
Thursday June 25 – US Goods trade balance (May)
Friday June 26 – US Personal income/spending (May)
Friday June 26 – US Consumer sentiment (June)
Food for thought:
“At the end of the day, the more quality individuals you develop in the community the better off the community should be.” – Gerry Harvey
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:
The OECD ranked the Australian economy as one of the strongest economic rebounders from COVID-19, as seen in this chart from AMP Capital:
Top 5 most clicked:
- 5 income favourites for all! – Paul Rickard
- Buy, Hold, Sell – What the Brokers Say – Rudi Filapek-Vandyck
- Here are the Aussie stocks I’m backing – Charlie Aitken
- Invest in quality for the long term? Can do! – Peter Switzer
- 4 lithium stocks for your long-term portfolio – James Dunn
Recent Switzer Reports:
- Monday 15 June: Invest in quality for the long term? Can do!
- Thursday 18 June: Here are the Aussie stocks I’m backing
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.