Switzer on Saturday

Stocks were Coronavirused and it wasn’t pretty but…

Founder and Publisher of the Switzer Report
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Wall Street has had another negative trading day and it’s all down to COVID-19. Yep, US stocks were ‘Coronavirused’ but the infection rate for the market  still looks manageable.

The Dow was off 730 points (or 2.84%) but the question is: can this measured sell-off last and not get into panic-like stuff?

It was always going to be the risk for stocks and it’s the hardest to forecast because how the virus behaves and how people behave was always the big curve ball. Yesterday the local stock market was up 1.5%, thanks to the US going soft on bank regulations, which helped our banks surge. But travel stocks copped it as COVID-19 news here and worldwide made Alan Joyce’s grim predictions for Qantas more worrying.

Yep, the intrepid travellers of Australia couldn’t have missed Alan’s reference to the belief that we won’t be flying freely overseas until mid-2021!

That’s why Flight Centre, Corporate Travel and Webjet were down 15% to 18% in a day. Emotional types will be saying: “Oh no” but fund managers and emotionless types will be pondering “when do I buy?”.

But the question to ponder over the weekend is: just how bad will the sell off be? We put the spotlight on this subject on Monday’s Switzer TV Investing program with my expert market players but the chart of Fairmont Equities’ Michael Gable showed we were ready for a slide, though nothing dramatic. However, charts are more accurate about the past and not the future. They can give clues but can’t anticipate how badly the US and Europe can cope with reopening the economy and how big the second-wave infections will be as we try to embrace normality.

Regular readers of my Switzer Daily column know I’m an advocate of compulsory mask wearing on public transport and in lifts in shopping precincts because it works in places like Hong Kong. And even New York is aggressive on mask wearing in shops and other group gathering areas and the Big Apple is doing better when it comes to reinfection issues.

One of our New York-based financial planning clients did a zoom meeting with us yesterday and was very happy with her city’s management of the virus. She said she recently rushed out to buy something from her corner store and forgot her mask and was stopped at the door!

So it’s all about infection rates for Wall Street now and to bring home the threat to the economy, normalcy and a confident stock market, it was reported that 16 NBA basketballers went into self-isolation overnight in the States.

This is the new dominant uncertainty on that damn wall of worry that I write about for you every week. How this second-wave threat is handled will determine the course of the economy, stock markets and whether Donald Trump gets a second term.

As Charlie Aitken said on my TV program, a pullback of sorts for stocks was on the cards. But if a vaccine or successful treatment turns up, the stock market will pop big time! But predicting vaccine timelines isn’t my strong suit.

We’re in a waiting game and I suspect we’re in for a few weeks of anxiety.

Here’s a summary of the big market take-outs of the week:

  • The S&P/ASX Index gave up 0.7%.
  • On Friday alone, CBA put on 2.4% to $69.27 and Westpac was up 3.3% to $17.99, NAB was 2.7% higher to $18.40 and ANZ rose 3% to $18.80.
  • Miners were up 2.1% for the week.
  • Defensive health stocks did well, with Resmed up 7.4%.
  • Travel stocks copped it.

This chart from the AFR sums up the week:

What I liked

  • Looking for good signs for the economy and the SEEK job ad volumes lifted by 21.9% in the fortnight ending June 21 and now are at 68.3% of pre-virus levels in February 2020.
  • The Australian Bureau of Statistics released the Business Impacts of COVID-19 survey and 20% of retailers reported a lift in revenue compared with a year earlier! The suburbs are doing well but the CBD shopping precincts are hurting.
  • The weekly ANZ-Roy Morgan consumer confidence rating was stable at 97.5 points (long-run average since 1990 is 112.9). Confidence has only fallen once in the past 12 weeks.
  • The Commonwealth Bank (CBA) card spending in the week to June 19 was up 7.1% on a year ago, compared to a 6.2% lift for the week ending June 12. Online spending rose by 8.4% (previous week: +7.9%) and in-store spending was up 7.3% (previous week: +5.9%) over the period.
  • The CBA ‘flash’ PMI for manufacturing rose from 44 to 49.8 in June, with the services PMI up from 26.9 to 53.2. A reading above 50 indicates expansion. Over 50 news is a ripper!
  • The rolling annual trade surplus stands at a record high of $87.2 billion.
  • The IMF says the world economy will rebound by 5.4% in 2021, while Australia is expected to decline 4.5% in 2020 (which is smaller than tipped because a 10% forecast once haunted us) and then lift by 4% in 2021.
  • Germany saw a record rise in the Ifo business sentiment survey in June.

What I didn’t like

  • In May 2020, the underlying budget deficit was $24.92 billion, the biggest monthly deficit since monthly records were first maintained. Over the full 12 months to May, the deficit hit $65.49 billion or around 3.3% of GDP but only six months ago the budget was broadly balanced! That said, I think we know why and if we hadn’t done so well with this damn virus, the numbers would be a lot bigger.
  • The International Monetary Fund now expects the global economy to contract by 4.9% in 2020, which is up from its earlier 3% call.
  • COVID-19 news!

Could all this turn to s#!t?

My biggest dislike for the week had to be the worst indicator of all – toilet paper buying! I don’t get it but I guess I’m not in tune with the normal Aussie and how he/she fears running out of those little white squares!

Remember this madness did run ahead of the last big sell off of the stock market. I never pretend economic indicators are always better than real world ones, even when they crap me off. And the one-day chart of Woolworths could be prophetic. Just before the market bottomed and started its rebound, WOW was a $39.60 stock. It rose 0.92% yesterday.

Woolworths (WOW)

If stocks succumb to the virus reinfection threat, then you could have a wow of a time with this toilet paper stock!

The week in review:

On our YouTube channel this week:

Top Stocks – how they fared:

The Week Ahead:

Monday June 29 – Household impacts of COVID-19
Tuesday June 30 – Speech by RBA Deputy Governor Debelle
Tuesday June 30 – Private sector credit (May)
Tuesday June 30 – Weekly payroll jobs & wages
Wednesday July 1 – CBA & AiGroup manufacturing indexes (June)
Wednesday July 1 – CoreLogic home prices (June)
Wednesday July 1 – Building approvals (May)
Thursday July 2 – International trade (May)
Friday July 3 – Retail trade (May)
Friday July 3 – New vehicle sales (June)
Friday July 3 – CBA & AiGroup services indexes (June)

Monday June 29 – US Pending home sales (May)
Tuesday June 30 – China manufacturing and services indexes
Tuesday June 30 – US Federal Reserve Chairman Powell speaks
Tuesday June 30 – US Conference Board consumer confidence
Wednesday July 1 – China Caixin manufacturing index (June)
Wednesday July 1 – US ADP employment change (June)
Wednesday July 1 – US ISM manufacturing index (June)
Wednesday July 1 – US Federal Reserve meeting minutes
Thursday July 2 – US Employment/unemployment (June)
Thursday July 2 – US Factory orders (May)
Friday July 3 – China Caixin services index (June)
Friday July 3 – US financial markets closed

Food for thought:

“Ponder and deliberate before you make a move.” – Sun Tzu

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 announcement of negotiations between the UK and Australia for a free trade agreement, promoted by UK PM Boris Johnson as an opportunity for Brits “to have Tim Tams at a reasonable price”, the Financial Times published the following chart which looks at some of the most popular exports between the two countries:


Top 5 most clicked:

Recent Switzer Reports:

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