Weekly Market Update – 15 Mar 2021

More stimulus, improving outlook & portfolio considerations.

Global equity markets rallied for a third straight week last week climbing +1.8% on the back of a third round of fiscal stimulus being passed in the US House of Representatives.

The US$1.9t stimulus package seeks to provide those Americans impacted by the COVID-19 pandemic with a one-off US$1,400 cheque as well as extending the US$300 weekly emergency unemployment benefits into early September.

This latest round of fiscal stimulus drove the S&P 500 higher rising +2.6% whilst the Dow Jones Index traded record highs rising +4% and the Nasdaq climbed +3%.

Further boosting sentiment was a better-than-expected US jobs report which continues to point to further signs of recovery in the underlying economy. Payrolls increased by 379,000 in February compared to expectations of a 200,000 rise whilst January’s payrolls were revised upwards in another sign of strength.

It was a very strong set of numbers with February’s employment close to doubling expectations and culminated in the unemployment rate falling to 6.2% from a previous recording of 6.3%.

Since the beginning of February bond yields have been a central theme to market commentary having widened from just over 1% for six consecutive weeks to now yield 1.62%.

The rationale for the widening in bond yields is quite straight forward.

Investors believe the economy is tracking ahead of central bank expectations and the likely response from central banks, in this case the Federal Reserve, will be to wind back on its accommodative monetary policy and raise interest rates.

We continue to see the risk of this occurring in the near term as low.

The Federal Reserve is on record stating that unemployment and inflation have a long way to go before they are sustainably meeting their targets and interest rate hikes are highly unlikely. Remember it was not long ago that Fed Chair Jay Powell stated, “we are not even thinking about thinking about raising rates.”

Further supporting our theory was the release of core inflation data in the US last week which rose +0.1% and was below estimates suggesting broader inflationary pressures are not a near term threat.

We remain very conscious of the widening in bond yields given interest rates and risk-free rates are key determinants of future values for equities. However, we remain confident the outlook for equities remains strong with the latest stimulus cheques a likely benefit for business and service industries.

Australian outlook

The domestic outlook continues to look bright.

Not only was reporting season overwhelmingly positive on an earnings and dividend front but strengthening business conditions and upward revisions to GDP forecasts paint an optimistic future.

Last week we saw business confidence rise to its highest level since early 2010 whilst business conditions returned to multi-year highs after slipping in the previous month with trading, profitability and employment conditions all marking solid improvements

Conditions remain very strong in retail, wholesale, mining and professional services, while construction, personal services and transport conditions continue to lag.

Elsewhere, capacity utilisation and capex continue to rise and have now exceeded pre-virus levels and their long-run averages – an encouraging sign that the turnaround in business conditions and steady improvement in confidence is translating to higher capacity utilisation and increased investment.

The outcome of such encouraging data translates into GDP uplifts.

Westpac has brought forward its COVID economic recovery assessment lifting its 2021 GDP growth forecast to 4.5% from 4%.

Key components of growth being household consumption, business investment and dwelling construction were all surprisingly strong in the previous quarter’s GDP accounts and based on this momentum have been upgraded. WBC expect 1.6% growth in March 2021 which would exceed December’s growth by 0.4%.

ASX Weekly Wrap

The ASX200 underperformed the global benchmark last week but still managed to record gains of +0.8%.

Travel and tourism stocks were well bid following the Federal Government’s announcement of a $1.2b tourism package to support Australian aviation and smaller regional destinations.

Corporate Travel (CTD) rose +14% whilst Flight Centre (FLT) and Webjet (WEB) were also major beneficiaries rising +8% and Qantas (QAN) added +4%.

Consumer discretionary stocks was the best performing sector in the market rising +4% ahead of industrials which climbed +3.7% higher.

The best performing stock in the PRIME Australian Equities Growth SMA last week was News Corporation (NWS) which rallied +7% and which goes ex-dividend 9c per share today.

Whilst there was limited news out last week Executive Chair Rupert Murdoch did acquire an additional 500,000 shares via trust which always bodes well for investor sentiment.

Following on from a very strong set of numbers reported in last month which showed Q2 net income of US$261m well ahead of forecasts, NWS shares have now rallied +29% in the past two months.

Whilst we remain confident in NWS’s ability to continue executing on its strategy, we took the opportunity following the strong share price rally to reduce 1% of our exposure.

Stocks to consider

With half year reporting season all wrapped up we are now able to look more closely at some stocks that we think performed well on an earnings basis but which for some reasons did not see the share price rallies that we thought their results deserved.

Stocks at the top of our list include Waypoint (WPR), Brambles (BXB) and Woolworths (WOW).

WPR shares fell -7% in February despite what we interpreted as a decent set of numbers. WPR is a $1.8b real estate investment trust that owns 474 retail petrol and convenience stores operating under the Coles Express banner.

What attracts us to WPR besides its relative underperformance to the market in the last two months is that it has one of the longest weighted average lease expiries (WALE) in the ASX200 at approximately 11 years and its service stores are running at 100% occupancy.

WPR generates attractive cash flows and has 3% annual rental revenue increases built into its lease agreements.

The stock offers up an attractive dividend yield of around 6.6% at current levels and a very conservatively geared balance sheet. We think this is one of the stocks that has been left behind throughout reporting season.

Of the others BXB was -6% weaker during February despite group revenues climbing +7%. We thought the result was overall quite positive with underlying profit rising +7% despite higher operating costs due to the rising costs of inputs.

BXB is a stock that we believe is well leveraged to a continued reopening of the global economy through its global pallets business CHEP.

Finally, Woolworths (WOW) shares fell -3.6% following the 1H release and we thought this was overly harsh. The strength of the WOW franchise and the upcoming spinout of its Endeavour drinks business are likely catalysts to see the stock rerate higher.

WOW modestly underperformed the index and its elevated levels of online sales growth prove this is a business that has certainly emerged from COVID in a structurally stronger position.  

Looking ahead

Monday 15th March 2021 – Friday 19th March 2021

  • Monday: AU RBA Speech, New Home Sales (FEB), CN House Price Index (FEB), Retail Sales (FEB)
  • Tuesday: AU RBA Meeting Minutes, House Price Index Q4, US Retail Sales (FEB)
  • Wednesday: AU Westpac Leading Index (FEB), US Industrial Production (FEB), Building Permits (FEB)
  • Thursday: AU Unemployment Rate, US Federal Reserve Interest Rate Decision, UK BoE Interest Rate Decision
  • Friday: N/A

Friday 12th March, 5pm values

 IndexChange%
All Ordinaries 7015+72+1.0%
S&P / ASX 2006767+56+0.8%
Property Trust Index1372-5-0.4%
Utilities Index6049+153+2.6%
Financials Index6079-8-0.1%
Materials Index16238+89+0.6%

Friday 12th March, closing values

 IndexChange%
U.S. S&P 5003943+101+2.6%
London’s FTSE6761+130+2.0%
Japan’s Nikkei29718+854+3.0%
Hang Seng28740-358-1.2%
China’s Shanghai3453-49-1.4%

Key dividends

Monday 15th March 2021 – Friday 19th March 2021

  • Monday: Div Ex-Date – ANZPE (ANZPE), ANZPF (ANZPF), Chorus Limited (CNU)
    Div Pay-Date – CBAPD (CBAPD), CBAPE (CBAPE), CBAPF (CBAPF), CBAPG (CBAPG), CBAPH (CBAPH), CBAPI (CBAPI)
  • Tuesday: Div Ex-Date – News Corporation (NWS), TPG Telecom (TPG)
    Div Pay-Date – Amcor (AMC), Alumina Limited (AWC), Legg Mason Western Asset Bond Fund (BNDS), Qualitas Real Estate Income Fund (QRI)
  • Wednesday: Div Ex-Date – BWX Limited (BWX)
    Div Pay-Date – NABPH (NABPH), VG1 (VG1)
  • Thursday: Div Pay-Date – Computershare Limited (CPU), Platinum Asset Management (PTM), ResMed Inc (RMD), WBCPI (WBCPI)
  • Friday: Div Pay-Date – Iress Limited (IRE), Jumbo Interactive (JIN)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

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 4707 Nicholas Miller T: (03) 8825 4722
Jarrod Rodda T: (03) 8825 4729

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.

SPEAK WITH US TODAY

A unique and personal service approach and support for all your business advisory and personal wealth management needs

Request a consultation

A unique and personal service approach to support all your business advisory and personal wealth management needs.

Request a consultation