Weekly Market Wrap
The “buy-on-the-dip” traders are being tested in the Aussie market this week, as we run into the December/Christmas period – a typically strong period for the markets.
• The US markets again pushed through to new all-time highs and closed above key round number levels, as traders looked to Black Friday for an indication of the strength of consumer confidence going into the shopping season.
• In Europe the markets held around their recent highs, on the back of the ECB central support for “easy” money.
• The Australian market has drifted lower and is looking to finish near the lows for the week.
US stock markets had a shortened trading week and are edging higher into month’s end. The three benchmark indexes have held on to recent gains and continued to trade around key round number record high levels. The S&P 500 is holding around all-time highs, extending its third month of gains. It’s now up 26% for the year and is on track for its best annual performance since 1999, while the Nasdaq closed above 4000 for the second time since the year 2000.
Lower crude oil prices have weighed on the energy sector this week, after the first major breakthrough in Iran since 2003, as the government agreed to curtail nuclear activities in return for easing of sanctions. The gold price is trading at four-month lows.
Economic data shows the US economy continues to improve steadily, with the Case-Shiller Index of property prices in 20 cities rising 13.3% in September (up from the prior 12.8%), while another report showed US consumer confidence unexpectedly rose to 73.5 (up from 73.2) above expectations. The Conference Board Index of US leading indicators, which gauges the economic outlook for the next couple of quarters, rose for a fourth straight month. In a “Don’t fight the Fed” note, QE has fuelled the recovery on the S&P 500 since 2009, and there has been a measured move of around 75%+ gains, from Mar-09 to Mar-10 and Oct-11 to now. Investors are piling more money into stock mutual funds in the US than at any time in the past 13 years. A global poll by Bloomberg has revealed 80% of investors expect that the US Federal Reserve will delay the taper until March 2014. This may explain the record amounts of cash pouring into US equity-based mutual funds of over $US50 billion during the month of October, according to analysis by Lipper.
European stock markets have risen to their highest level since May 2008. The Europe Stoxx 600 index has closed higher every December for the past four years, which bodes well for a Christmas rally. The index is still up 0.9% for the month and up 16% for the year and is on track for its best annual gain since 2009. The VStoxx index is at its lowest level since February 2007. A report by the European Commission showed economic confidence in the eurozone rose to 98.5, up for a seventh month. The German market rose to all-time highs again, as consumer confidence rose to 7.4 (up from the prior 7.1) and the 9500 level is now in sight for year’s end, as German investor confidence has also risen to its highest level in over four years. The London market edged higher, as an Office of National Statistics report showed the UK economy grew 0.8% in the third quarter, as business investment rose 1.4%, but exports fell -2.4%.
Asian markets have recovered from some profit taking early in the week, with gains led by Japan. The MSCI Pacific Index is up by over 9% for the year. The Chinese market has risen to a one-month high, as mining stocks rebounded and supported the market. The Chinese Third Plenum meeting has resulted in a 60-point plan of reform measures that provided a significant boost to Chinese equity markets as well as to their economic outlook. There has been increased optimism behind China’s round of new reforms, including relaxing the one-child policy and expanding the trading band on the Yuan, both of which are seen as positive forces for overall commodity market demand in the medium-term. The Japanese market has surged, closing at its highest level since December 2007 led by the exporters after the yen traded around its lowest level since July. The Hong Kong market eased, holding around its highest level since March.
In today’s Analyst’s Eye article we highlight the advantage of Reinvesting Dividends in Your Self Managed Super Fund (SMSF) and provide guidelines about what you should consider when either reinvesting your dividends or considering how to boost the dividend yields in your super fund.
The Australian equities markets have had another lacklustre week, with the energy sector the biggest drag, down -2.6%. The miners were under pressure due to falling commodity prices and further downgrades in the mining services companies have also triggered another round of selling in the sector. The indexes are again looking for support around the 50-day moving average but are finishing on their lows for the week, as investors rule off November. The banks have been providing some support this week, even though there has been continued weakness in the Aussie dollar, which has prompted international fund managers to take profits in the post-dividend season. This is giving the buy-on-the-dip traders one more chance to chase this market higher into the Christmas period.
The Aussie indexes are finishing the week on their week’s low. The focus has turned towards the Christmas trading period, while the Aussie dollar has been under pressure again. We have seen profit taking in stocks which recently had sharp short covering rallies, such as Bluescope, CSR, Incitec Pivot and Orica, although James Hardie is trading even higher. Across the market the pullback has been broad based, with selling in the Energy sector continuing through its six-month support, but most sectors are finishing the week around their recent support levels.
Key levels for the ASX 200 index next week are around 5280 and 5380, with 5320 the key near term pivot level. Note volatility has picked up again this week and the “buy on the dip” is being tested. Investors should be looking to take this opportunity to use options to position their portfolio(s) near-term, and warrants can also be used to hedge existing positions. The ASX 200 and All Ords appear to be positioning for a push up into December. Note the ASX seasonally runs higher into the end of the year and has a tendency to produce substantial gains in the final couple of weeks of December and the first week of the New Year, with the average gain for that three-week period of 4.5%, with an 85% win rate over the past 33 years, according to Goldman Sachs.
Remain attuned to the news from overseas, particularly from the eurozone (ECB/PPI), China (Trade Balance) and the US (PMI/NFP). Monitor the US dollar for a guide to the future direction of commodities and equities prices.
Contact me at D2MX Advisory on 1300 610 024 and I can help you trade, using a number of strategies that will give you the tools to navigate this market and help you improve your returns on investment.
Investment Adviser D2MX Advisory
This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.
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