The Market Wrap 20-1-16

By Jason Fittler,

The start of the year has been exciting for the market, with the ASX 200 down 460 points from the high 5320 to low of 4860 this is a fall of 8.6%.

Although this sounds bad, if we look back over the past six months the market has been at these lows 4 times.

So what do you do when the market is like this? Do you buy, sell or sit and wait?

The key is to go back to your investments strategy and then review all of the companies individually. You need to work out how the news coming through will affect each company and what is the best course of action.

The key issues are, fall in commodity prices, low oil price, China market falling and the US increasing interest rates.

When broken down each issue, is not that big a deal but having them all at once has caused considerable panic in the market.  Add to this the increasing unemployment issue in Australia and we are seeing the tail end of the GFC.

The next and last phase will be housing prices falling on the back of personal bankruptcy.

Investors, however, should take advantage and buy on weakness.

The Market Wrap 27-11-15

By Jason Fittler

The market has continued to move sideways over the past week maintaining the trading range it has been in for the last couple of months. 

I expect that it will continue this trend into Christmas, as there are no real signs of a recovery in the economy. The interest rate in Australia is expected to stay on hold until next year.

The Feds in the US will meet on the 18th of this month. The US has been hinting of a rate raise but I for one would be surprised if they raised the rate before Christmas so I expect them to stay on hold for now. 

Oil remains flat. Gold pulled back last week. The exchange rate has jumped this week currently around $0.73 per US dollar.

There are plenty of corporate actions going on at present as companies look to raise capital to reduce debt or make acquisitions. Investors need to make sure that they are looking closely at these, as there are some good opportunities available.

The big surprise was Cardno coming out with a rights issue of $1 per share when the price is currently trading at $3 per share. This has pushed the price of Cardno back to $1.75 per share however holders should still look at this offer, as your holding will be diluted if you do not accept.  

The Market Wrap 13-11-15

By Jason Fittler

The market was lead lower this week by the oil price that is currently around $40 per barrel.  

The oil price pushed Santos, and Woodside and BHP lower.  When coupled with the banks these factors brought the whole market down. 

At present, oil prices seem set to stay lower as Oil Company’s increase production to ensure cash flow to keep their business afloat. Keep in mind that generally the oil price is closely controlled through production level via OPES. 

Currently, the economic principals of supply and demand have control. You will remember that about a year ago Saudi Arabia refused to allow OPEC to increase prices by limiting production of crude oil. 

The general idea was to drive America’s shale-oil producers out of business. The issue is, will these shale oil producers simply ramp up production once the oil price rebounds. 

World Energy Outlook released a position that the oil will have sluggish recovery; the best expectation is $80 per barrel by 2020, the alternative is between $50-$60 a barrel by 2020.

Either way we are expecting a slow recovery with oil stocks.

The Market Wrap 6-11-15

By Jason Fittler,

As expected, interest rates were left on hold this week.

Support for another cut is drying up at present with the figures just not supporting the case. 

The housing market cooled off a little. 

I expect that retails will pick up during the Christmas period. 

I expect interest rates will be left on hold and reviewed next year. My call is the next rate change will be an increase in interest rates. 

BHP got hit hard towards the end of the week due to a broken dam at one of their Brazil mines; the mudslide destroyed homes, and there are 45 people missing at present. 

Our market continues to stay in a holding pattern for now with the market dropping less than 1% for the week. 

The majority of the fall came about in the top 20 companies as investors look to reduce exposure to these sectors. 

The bulk of the market remained positive for the week, which indicates to us that this fall does not have a lot of support.

We will watch out of figures coming out of America next week that will provide a better idea of how the world economy is recovering. 

 

The Market Wrap 30-10-15

By Jason Fittler

The market traded flat for the start of the week before heading lower over Thursday and Friday with a number of large companies reporting. 

The big loser was Woolworths falling 13% this week after reporting that it expects that profits will be 35% next year as they intend to spend $500 million increasing their market share.

Both ANZ and NAB fell this week, although both posted increased profits they were below expectations.

The market did not hit Westpac as hard this week after announcing a rights issue.

There is a lot of talk about interest rates and the Reserve Bank decreasing them next week. It is my expectation that rates will be left on hold. Banks have already started to increase rates on their own and a further decrease will be negative for our exchange rates.

Inflation is low priming the media to talk about rate cuts however I do not think given the current interest a further rate cut will stimulate the economy.

The Market Wrap 23-10-15

By Jason Fittler

On Friday last week, the market jumped following on from the overnight lead in overseas markets. 

The major change was brought about from short covering.

Over the past 12-months, the markets across the world have been shorted. Investors have taken an option position against the market in anticipation the market will fall. This position seemed to change on Thursday night with investors looking to sell out some of these positions. This is a very positive indication that investors are becoming more positive long-term.

This seems to be due to the expectation the US interest rates will remain low for some time.

Back here at home the major banks have also increased interest rates reducing the pressure on the Reserve Bank to increase rates.

We expect that the market will remain volatile however we think that the price low is in. The emotional low may now also in as well. In which case, we can expect that generally the market will rise over the next 1-2 years.

This is not a call to rush in and buy, but it does give us more confidence to taking buying opportunities.

The Market Wrap 12-10-15

By Jason Fittler

The last couple of months have been volatile for the market.  

The below ASX 200 index chart shows the fall from 5900 points to a low of 4900 points. This a total drop of 16% in 5 months.   

But keep in mind the gains of the prior couple of years still put the share market as the top growth sector.

Last week the market put in a good rally with interest left on hold. But is this enough to sustain a rally back to 5900. 

Let’s look at the main issues. China is slowing which means less demand for our resources, so our exchange rate has fallen to the lows of $0.70 per US Dollar. 

We also note that the resources especially coal seam gas sector is being hit hard in the US as Oil prices are also at historic lows. This has affected the US bond market affecting the volatility in the US that affects us in Australia. 

At present worse case is the market slipping back to 4000 points, the bottom line in above chart. 

However support looks solid at current levels, and Australian companies are reporting as expected. 

Some companies look cheap. 

I continue to hold and look for buying opportunities such as the Origin rights issue currently in play. Companies looking to raise money will be doing it cheap and provide opportunities for easy gains. 

 

The Market Wrap 28-8-15

By Jason Fittler,

Shockwaves went through the market this week with a big fall on Monday, the market closing down 4%. 

Those who kept their cool used this as an opportunity to invest some the cash sitting on the sidelines.

For those who sold, I thank you for the cheap prices.

The market rebounded back for the rest of the week with the market closing around 60 points higher at weeks end.

We still expect the market to be volatile; as the US sells down, companies continue to report reduced profits, China slows, and the Aussie dollar is so low.

What this week showed us is that there are still plenty of buyers waiting to pick up shares on weakness.

Our view short-term is that the market may move higher possible up to 5400 however we expect that the market will at some point retest the lows seen this week.

Keep in mind that the market strongly rebounded when it hit 4900 setting a level of support.

We continue to look for opportunities, focus on income as growth is still some time off given the current economic conditions both in Australia the US and China.

The Market Wrap 7-8-15

By Jason Fittler

The last few months had been quite volatile in the market.

The below chart shows we had a good run from February through to May before the pullback that started in May and ended in early July.

At present the market as shown above in trading in a channel that is where I expect it to stay in the near term.

Always remember that the market is forward-looking. It will tend to trade in the channel like this when there is no information to point it either way. 

At present, we do not see any strong signs of reduction in unemployment, new infrastructure projects getting up or reform to increase efficiency or productivity.

Interest looks to be remaining the same for now and a hint that they may increase.

Banks once again must tighten lending through recent legislation brought in which will slow the housing investing market.  As such, I expect that the market will remain within this trading range for now.

In this sort of market, we need to be looking for individual opportunities.

One we are watching at present is GOLD, which has slipped back to 2010 prices, this puts pressure on many Gold miners as around this level they are approaching break even.

However, further drops in the price of Gold many provide a good opportunity to build a holding in this sector.

The Market Wrap 3-7-15

By Jason Fittler

The uncertainty in regards to Greece was a major factor concerning the market last week.

As I write this, we now know that Greece has votes “NO” the austerity measures required by their creditors.

The vote, in fact, has been positive for our markets, as the real question last week was what Greece was going to do. Now we know, the market can try to determine what will happen from here.

The real unknown is if Greece defaults on its debts, which investments will be affected. The unknown is why so many commentators have been referring to it as a GFC type event.

The issue with the GFC was we could not calculate the fall out, as there was no way to determine what investments would be affected.

However, Greece seems to be a different story where we at least have a better understanding of the companies and investments that may be affected by failing to pay their debts. 

However, this sort of uncertainty means that the markets will be volatile for the coming weeks and perhaps months.

Greece is heading into new territory. As the world watches on the next couple of days will be very interesting to see if a deal can be struck.

In the meantime, we will be looking for bargains.

The Market Wrap 26-6-15

By Jason Fittler

After a relatively good week, our market sold off hard on Friday down as much as 25 in trading but ended up closing down around 1.5%.

In just the last two days of trading, the market wiped out all of the gains of the past two weeks.  The ASX 200 closing at 5548 for the week.

Look at the yearly chart and you can see just how volatile the market has been. Starting the year at 5500 points, going as low as 5150 points, as high as 5950 points, and now trading at 5548 points. 

The volatility is on the back of the uncertainty in the markets both in Australia and worldwide.

Greece is still an unknown as we went into the weekend; couple this with last Thursday being end of financial year options expiry that accounts for the increased volume in trades.

Finally, with the end of the financial year being only two days away I suspect that fund managers are trying to sure up their returns for the financial year by booking losses to offset gains during the year.

I suspect that early next week Greece will be resolved, and we should see the market bounce back a little.

We saw some more positive news this week with job growth rate at the fastest pace since 2011 and Reserve Bank expected to keep interest rates on hold into 2017.  

The Market Wrap 19-6-15

By Jason Fittler

The news from Greece was bad.

Will they leave the EU or will they stay? Will they default on their debt and bankrupt the country or pull off a last-minute recovery.

America announced on Thursday night that they expect to be able to start to increase interest rates by the end of the year based on current economic data.

Sadly, it is not the same for Australia.

However, this news was good enough to see our market rally at the end of the week to close the week up around 5600 points for the ASX 200.

Expect volatility in the market as we continue to see the retail sector under pressure with Woolworths making the announcement of the week with further earnings downgrades, 1200 job losses including the CEO.

Our economy is weak. Here in Townsville unemployment is over 10% with no clear path to recovery.

Large companies are still holding off investing unless projects will return at least 10%.

The Reserve Bank knows any more rate cuts will be ineffective, and the Government has no money for stimulus. Thanks, Kevin O7.

The market will stay volatile for now as households prepare for a recession, opting to pay out debt as opposed to spending. 

The Market Wrap 12-6-15

By Jason Fittler

Did we see a “Dead Cat Bounce” this week?

There is little in the economy to be excited about.

The housing bubble is still key, and employment dropped by 0.1%.

But let's take a closer look.

There were 42,000 new jobs created of which 29,000 were part time and the rest, full time. 

What also improved was an increase in monthly hours worked which was up 0.1%. This means people are working longer each month.  

All positive so far, however, underemployment is still 14.5%. Although down it is still a concern.

The participation rate is currently 65%, which means of people able to work 65% do. The underemployed rate is 14.5% of these people; as such, 14.5% of working Australians are still not getting enough work.

Employment is the key to a stronger economy, the message I think Joe Hockey was trying to get across this week. While employment struggles so to will many Australia companies. 

In this type of market, we look to focus our investing in the companies that supply non-discretionary items such as power and energy as opposed to retail companies that rely on a booming economy for increased profits.

I expect our market to hold steady or move up slightly as we approach the end of the financial year. The past 2-years has seen good returns for the market.

2015 I expect to close fairly flat.

The Market Wrap 6-6-15

By Jason Fittler

The market dropped this week closing around 5500, which down 450 points or down 7.5% from the highs of April.

Yesterday brought the market to a nil return for the financial year so far however the key is the volatility.

The lows this financial year were 5100 and the highs of 5900 this is a swing of 800 points or 15%. 

As we head towards the end of the financial year, I expect to see the market move up slightly.

Until we see some serious government policy on job stimulation, you can expect more of the same as businesses continues to struggle, and families cut spending. 

We have heard a lot this week about the property bubble, but this is not the real story it is a distraction. The real story is that the cost of living in Australia has increased and living standards are decreasing.

We are now dipping into our savings to maintain our standard of living. Doing this is not something new, but it has been the trend since 2008. And a drop in living standards is a sign of a recession to come. 

The falling dollar and low interest rates are not helping foreign investments and lack of focus on both sides of government on key issues indicates the situation will not improve short-term.

The Market Wrap 29-5-15

By Jason Fittler

The market headed up this week although not in a straight line.

There is still caution in the market place as the Government has not provided much in the way of economic stimulus. Sure, the Budget provides a platform for Small Business to provide some short-term stimulus. But, Friday last we see the Reserve Bank trying to press big business to look for lower returns.

The goal is to try to encourage big business to put more money into capital expenditure that again will stimulate the economy. Good idea but you have to ask yourself who does big business work for the Government or the Shareholder.

The shareholder of course and I for one would quickly look to move my money out of any company that was not fiscally responsible.

What is clear is that infrastructure spending on a serious scale will not start until 2017, as there is simply not the money. This means higher unemployment will be the norm for the coming years.

Large companies as already talking about a recession and when we look at retails sales and forward expectations of infrastructure work I think they are right.

In these markets, it is time to build on weakness for long-term growth and live with your means.

The Market Wrap 22-5-15

By Jason Fittler

The gains of 2 weeks ago were wiped on the first three days of trade last week. 

Although the market tried to rally late in the week, it still closed down.  

The biggest surprise of the week was Cardno with earnings down the company’s share price fell 30% on the back of the announcement. Although it regained some ground on Friday closing at $2.80, it still lost 20% for the week. 

The Government infrastructure spends is yet to materialize. And is not expected until 2017.  This is a clear indication that we can continue to expect a weak economy and high unemployment for at least 2-years.

What does this mean for our market? 

Unemployment means that the retail sector will lack growth that we already see with Woolworths as they continue to post massive losses with the Masters store rollouts. 

Interest rates will remain low, which again will affect spending as most of the low-interest rates savings is currently going towards paying down debt. 

For investors it is time to start to focus on the growth companies in the material and energy sector. 

If underweight in this sector it is time to start accumulating.  

The Market Wrap 15-5-15

By Jason Fittler

The market rallied this week with the big news being the Budget.

Well, big news for the media not so much the market.

However, with the generous write-off provisions and lower tax rates handed out to small business we have seen the retail companies improve over the back end of the week.

These measures in the budget should at least provide a short-term sugar rush for small business that have been looking to get some new equipment or possible looking to put on more staff.

For our economy to improve we need people employed and unemployment to fall. Given small business employs 44% of the workforce it is the right stimulus at the right time.

We continue to be cautious on the banking sector and instead are looking towards materials, energy and retail for future growth in client’s portfolios.

We are also slowly building positions in the International sector again with a focus more on growth than income.

If you hold the banks, you may want to look at reweighting, especially if overweight in the sector. But, continue to maintain exposure for the benefit of the high yield. 

The Market Wrap 24-4-15

By Jason Fittler

Interest rates, exchange rates and iron ore prices have seen the market go lower over the past couple of weeks.

First let’s look at interest rates. The Reserve Bank left them on hold this month after widespread expectations of a rate cut. The expectation is that another rate cut is on the cards.

Markets pulled back on this news. There seem to be a belief that a rate cut will stimulate spending. The current focus for Australians is on jobs and saving money, not spending.

The rate is already at 2.15% with lending rates as low as 3.99%. Another cut will not be the solution, just ask Japan.

Exchange rates and Iron ore prices are having an effect on the profitability of the mining sector.  Regardless of the position of climate alarmists, this sector has provided Australia with most of our wealth over the past decades.

It will also be the industry, which saves Australia in this current slowdown. Volumes are still being sold, but profits, and therefore taxes are down which is causing the government to go on and on about deficits.

End of the day, the condition of our economy is such that deficits will be ongoing for some time. Keep in mind that it is not the government’s role to make a profit as they are a not for profit organization.

At present, there is a good opportunity for the long-term investor in the materials and energy sectors.

The Market Wrap 27-3-15

By Jason Fittler

Our market rallied at the end of the week but still closed down 60 points or just 1% for the week.

The week ended with all eyes on Greece.  They are preparing to show creditors what economic changes they will make.  This is to ensure that the country continues to enjoy the creditors support.

The market continues to see more strength.

Neither the exchange rates nor interest rates are looking to increase over the coming years. Couple this with the expectations of a softer budget in May means investors have little choice but to chase better returns in the market.

The financial sector was off this week with a drop in the later part of the week. Expectations of liquidity levels and investors looking to roll into other sectors and take profits are taking its toll.

Consumer Staple sector stayed steady after its big fall at the start of the month.

The Energy sector moved higher for the week and Materials sold off before the weekend.

The Utility sector closed on a high with good gains across the board.

Again, stable income seems to be attractive to investors.  

The Market Wrap 20-3-15

By Jason Fittler

The market continues to surprise.

This goes against all the media reports which last week that were telling us to be brave and sell out of the big blue chip companies. 

If we pause for a monument and look how the market has performed since the start of this year we have an outstanding result.

Our market opened this year at 5410 points and is now trading at 5969 points.  This is growth of 559 points or 10.3%. If we annualise this, it is a return of 48% pa.

Of course, it will not continue on this growth path for the full year.  But it does indicate that with interest rates low, unemployment high, oil and iron ore prices off, exchange rate at $0.75 and a Government which is struggling with a hostile senate that investors are once again prepared to take on the risk for the reward.

It seems that the fear from the GFC is now in the past and the fear of being left behind has kicked in.

Company results are mixed, but we are seeing improvements. 

The volatility is still in the market however; over the past month, we have seen support continue.

We are also seeing strong support for IPOs indicating that there is still money waiting on the sideline to get into the market.