The Monday Report – 24 August 2020

This story features WEBJET LIMITED, and other companies. For more info SHARE ANALYSIS: WEB

By Greg Peel

Spending Spree

The futures had suggested up 10 points on Friday morning but instead the ASX200 jumped 46 points in the first ten minutes. Given any strength on Wall Street had been all about FAAMG and little else, such an open seemed curious.

The market agreed, and by lunchtime the index was down -16 points as earnings results flowed. A late push led to a slightly positive close.

Aside from the day’s result reports, Friday was notable for a lot of squaring up against prior earnings result responses on the one hand, and “kicking on” on the other. Often initial jubilation/shock is tempered by broker analysis of a result the following day, which is not always prima facie what it seems.

Reversals from prior earnings responses included Webjet ((WEB)), up 11.8%, Nearmap ((NEA)), up 10.2% (both these stocks are heavily shorted), Santos ((STO)), up 3.6%, Qantas ((QAN)), up 3.7%, OZ Minerals ((OZL)), down -4.6%, IDP Education (IEL)), down -3.9% and Netwealth ((NWL)), down -3.6%.

Kicker on-ers included Star Entertainment ((SGR)), up 7.1%, Charter Hall Group ((CHC)), up 2.4%.

For Webjet, and stable mate Flight Centre ((FLT)) which rose 7.1%, and Star Entertainment, it appears the going downward trend in the Victorian case-count, along with single digits in NSW, have provided hope for some light at the end of the tunnel. We won’t mention Fortress Queensland.

Other influence on the day were preliminary July retail sales data showing a 3.3% increase, up from June’s 2.7% and well ahead of 0.5% forecasts. This news had retail landlords Vicinity Centres ((VCX)) and UR Westfield ((URW)) up 6.0% and 5.7%.

And what did we buy? Electronic goods (+37%) and household goods (+30%). Break the latter down further and you get furniture (+32%), homewares (+13%) and hardware (+17%).

It would be great news if we thought it could last. Aside from Victoria bucking the national trend (total sales down -2.0%), these numbers pre-date Melbourne stage 4 and the JobKeeper wind-back. And just how many tablets and sofas can we keep buying?

On the sector front, notable moves in either direction belied a small net gain for the index.

Property was the best performer (+1.5%), led by the retail REITs and Charter Hall, energy came in second (+1.3%), led by Santos, industrials clocked 1.3%, with some help from Qantas ((QAN)), up 3.7%, and telcos (+0.7) were aided by TPG Telecom rising 2.7% on its result.

Utilities fell -1.2%, healthcare fell -1.3% as investors continued to reverse CSL’s ((CSL)) post-result gain, materials fell -0.5% as selling continued in BHP Group ((BHP)), and financials fell -0.6% as selling continued on the banks post quarterly updates.

Financials fell despite Suncorp ((SUN)) jumping 11.0% on the day on its result release. Notably, Suncorp was the only stock to report on the day that finished in either the top five index winners or losers, which was quite a change from previous sessions during the week.

Friday’s are always good square-up days.

Famous Five

A flash estimate of US August manufacturing PE came in at 53.6, up from 50.9 in July, remembering that it’s still a very long way back to pre-virus activity levels. Japan’s equivalent ticked up to 46.6 but remains in contraction, while the eurozone fell back to 51.6.

No guesses for why the US dollar index rose 0.5%. And we can throw in US existing home sales rising 24.7%, breaking the record set in June. For that we can thank the Fed.

The S&P500 set a new high on Friday in closing at 3997. It did not surpass the prior intraday high of 3999 earlier in the week, nor at any point breach 4000 (high on the day 3999.96). Looks like 4000 might be a hard nut to crack.

The Nasdaq also hit a new high of course – it was a day ending in the letter “y” – because the rally was yet again mostly down to FAAMG. These five stocks alone now represent 23% of the S&P500. Apple rose 5% on Friday, because it can. And the launch of its first 5G phone is still pending.

Tesla rose again on Friday to become the ninth biggest stock on Wall Street, surpassing Wal-Mart. To put that into perspective, if you add together the market caps of GM, Ford and Fiat Chrysler, then multiply that number by four, you still won’t reach Tesla’s market cap.

You have to think Tesla will be promoted to the S&P500 at the next reset, as anticipated. By rights it could also make the Dow, post stock split, if Dow Jones is that brave.

While the S&P closed higher on the week, it wasn’t by that much. The S&P500 equal-weighted index on the other hand (weights FAAMG equally with every other stock), fell continuously over the week. Some 60% of stocks in the S&P remain -10%-plus below their February highs.

Can this just keep going on and on? History says no. But history also says it can go on for a long time before it stops.

What happens when a vaccine is found? Assuming it is. Does Wall Street grow another leg? Or do all the virus winners which have led the market back to square, such as FAAMG, suddenly become massive vaccine losers?

All will be revealed, one day.

Commodities

Looks like the dollar bounce took the wind out of commodity sales.

But also the Aussie. It’s down -0.5% at US$0.7158.

The SPI Overnight closed down -11 points.

The Week Ahead

If you thought last week was a busy one in the local result season, you ain’t seen nothing yet.

Note also that the ex-divs are beginning to flow more freely.

Economically, June quarter construction work done on Wednesday and private sector capex on Thursday will go a long way to informing GDP forecasts, which must to now be a bit of a guess.

The US will see consumer confidence and new home sales tomorrow night, durable goods orders on Wednesday, a revision of June quarter GDP on Thursday which will mean little, and personal income and consumption numbers on Friday along with the Fed’s preferred PCE inflation measure.

Strap in.

The Australian share market over the past thirty days…

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