Weekly Market Update – 7 September 2020

A tale of two halves

Last week was very much a tale of two halves.

Sky high optimism for growth stocks, namely those in the US tech space, saw equity valuations stretched even further.

Not even share splits in Apple (AAPL) or Tesla (TSLA) could thwart investor demand and risk appetite. AAPL shares rallied +3% from $500 pre-split to $129 following a four-for-one split which saw its constituent weight in the price-weighted Dow Jones Industrial Average Index fall from 12% to less than 3%.

Even more impressive were TSLA shares which moved from $2000 pre-split to $500 following a five-for-one split.

Think that over for a moment. The impact of the change is precisely zero – investors just receive four additional shares for each share already owned but TSLA shares surged +20% in the days to follow with Elon Musk announcing last Tuesday TSLA will seek to raise an additional $5bn for general corporate purposes.

The momentum and strength is staggering.

You only have to look at the Buy Now Pay Later space for further confirmation. PayPal (PYPL) announced its intention to join the payment instalments market launching its Pay-in-4 credit platform in the US market which as the name suggests provides very similar terms to Afterpay (APT).

But the second half of the week saw some profit taking.

Thursday and Friday saw indiscriminate selling in the US with the NASDAQ falling more than -6% over the course of two days and the S&P500 fell -4.3%.

A strong print on Friday in US payrolls saw the unemployment rate drop to 8.4% from 10.2% in July but did little to prevent the market from falling further. The US economy added 1.37m jobs in August which lifted the unemployment rate to its lowest level since March.

Friday’s payroll data also showed a dramatic decrease in the total number of those on leave of absence from 31 million in July to 24 million in August.

Whilst the data is improving it remains well off the 50-year lows in February of 3.5% unemployment.

Locally, the ASX200 followed the US lower falling -3%.

Unsurprisingly the majority of the worst performing local equities were tech stocks with Wisetech (WTC), Afterpay (APT) and Appen (APX) all falling -7%.

Many of these stocks, particularly in tech, have seen significant future growth priced in since March on limited news flow and we think it is important to remain cautious here.

Government to fund CSL

Positive news this morning that the Commonwealth government will provide funding to help and support CSL (CSL) in its attempts to expand Australia’s vaccine manufacturing preparation.

A signed heads of agreement to manufacture 30 million doses of the Oxford University and AstraZeneca vaccine, which is the world’s most advanced undergoing phase three trials is welcome news.

Whilst there remains plenty of hoops to jump through and further clinical trials need to prove successful this is undoubtedly a positive step forward in ensuring Australians have access to a vaccine when it does become available.

CSL shares are +1% in early morning trade.

The recession we knew was coming

Confirmation bias is an interesting concept.

Essentially it impacts how we gather information and influences how we interpret it.

The headlines on Australia’s national GDP data from last week felt very much like various confirmation biases playing out in full swing.

“The worst contraction since WWII” is simply a headline. The technical recession we finally received confirmation of was certainly one we knew was coming. Having seen a -0.3% decline in GDP in the March quarter it was only ever going to deteriorate considering the lockdown and restrictions only became more severe in the months to follow.

So, it really is not surprising to see the June quarter figure show GDP fall -7%. Private demand which is essentially spending on goods and services other than public resources like electricity and water fell heavily as households clamped down on spending during the pandemic.

Service spending fell by -17% with transport, vehicles, hotels, cafes and restaurants hardest hit and household consumption which makes up 60% of the GDP figure fell -12.1%.

It is hard to spend when shops are closed and we have known this for some time.

The extension of lockdown restrictions in Victoria along with the tapering off of jobkeeper payments will weigh heavily on the Q3 GDP figures so we need to look out to 2021 to see some stability here.

We continue to remain cautious on markets both locally and abroad and continue to advocate for clients holding a little extra cash as we approach the US presidential election in November.

Coles (COL) and Spark Infrastructure (SKI) remain two of our preferred holdings given their defensive qualities.

Looking ahead

Monday 7th – Friday 11th September

  • Monday: ANZ Job Advertisements
  • Tuesday: AU NAB Business Confidence, US NFIB Business Optimism Index
  • Wednesday: AU Westpac Consumer Confidence
  • Thursday: US Core Produce Price Index, US Jobless Claims
  • Friday: US Core Inflation

Friday 4th September, 5pm values

 IndexChange%
All Ordinaries 6109-152-2.4%
S&P / ASX 2005926-148-2.4%
Property Trust Index1290-3-0.2%
Utilities Index7166+74+1.0%
Financials Index4634-160-3.3%
Materials Index13774-381-2.7%

Friday 4th September, closing values

 IndexChange%
U.S. S&P 5003427-81-2.3%
London’s FTSE5799-165-2.8%
Japan’s Nikkei23205+322+1.4%
Hang Seng24695-727+2.9%
China’s Shanghai3355-49-1.4%

Key dividends

Monday 7th – Friday 11th September

  • Monday: Div Ex-Date – ASX (ASX), IOOF (IFL), Sonic Healthcare (SHL)
  • Tuesday: Div Ex-Date – APL (APL), MQGPB (MQGPB), NABPF (NABPF), Northern Star (NST), Origin Energy (ORG); Div Pay-Date – Metrics Master Income Trust (MXT), Metrics Master Opportunities Trust (MOT)
  • Wednesday: Div Ex-Date – BWX (BWX), Brambles (BXB), Nine Entertainment (NEC), WBCPI (WBCPI)
  • Thursday: Div Ex-Date – ANZPG (ANZPG), ANZPH (ANZPH), CSL (CSL), NABPE (NABPE), RWC (RWC), South32 (S32); Div Pay-Date – MQGPD (MQGPD)
  • Friday: Div Ex-Date – WBCPF (WBCPF), WBCPH (WBCPH)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750
Jordan Lisle – Dealer & Research Assistant(03) 8825 4749

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Cameron MorcherT: (03) 8825 4737
Livio Caiolfa T: (03) 8825 4748Michelle BromleyT: (03) 8825 4751
Marcus AingerT: (02) 9134 6292Nicole LewisT: (03) 8825 4734
Dylan CresswellT: (03) 8825 4707Garry FrizzoT: (07) 4019 2410
Michael CooperT: (07) 3010 8597Nicholas MillerT: (03) 8825 4722
Jarrod RoddaT: (03) 8825 4729Romeo AbdoT: (03) 8825 4732

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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