Weekly Market Wrap
Stock markets have been strong again this week, with many making new all-time highs. The US and German markets have been particularly impressive, and Japan is at 4½ year highs. Trader sentiment has been buoyed by speculation that soft economic data will firm the resolve of the central banks’ commitment to continue their stimulus programs.
Closer to home, the Federal Budget was handed down with a $21 billion turnaround, but this did not affect the equities market. Nevertheless it has been a terrible week for mine services companies with a number reporting profit downgrades and subsequently seeing their share prices punished. The mining sector has suffered from the weaker commodity prices, with gold cracking below the $1,400 level and iron ore prices now down over 20% from February highs.
US stock markets are hovering around new all-time highs. Traders have responded positively to soft employment, housing and manufacturing data, as the Fed Chairman Ben Bernanke confirmed that the US Federal Reserve will continue its unprecedented stimulus until the jobless rate falls to 6.5 percent or inflation rises above 2.5 percent. However overnight we saw some profit-taking as the Federal Reserve Bank of San Francisco President said the central bank may begin slowing the pace of its $85 billion in monthly bond-buying amid signs the economy is gradually gaining strength.
The Dow Jones has remained above the 15,200 level. The S&P500 again held at the 1650 level near all-time highs and has closed higher for nine of the last eleven trading sessions (up 16% for the year). Nearly 200 of the S&P 500 stocks are at 52-week highs, the most since 1993. The gains have been broad based as over 85 percent of S&P 500 stocks are trading above their 50-day moving average, according to Bloomberg (the highest level since 14 March).
European stock markets are hovering around 5-year highs. The Europe Stoxx 600 is up 10% for the year and is at its highest level since June 2008. It is clear that the ECB will remain supportive of equities going forward. Across the region the commodity related sectors weighed again, after JPMorgan lowered its forecast for Chinese 2013 gross domestic product growth to 7.6 percent from 7.8 percent, citing weak domestic demand. Traders also received confirmation that the eurozone is suffering its longest recession since the GFC, as a Eurostat report showed the eurozone economy shrank more than economists had forecast, extending its recession to a record sixth quarter as GDP fell 0.2 percent in the first quarter, after sliding 0.6 percent in the final quarter of 2012. The longest recession since 2000 is the 15-month long contraction in 2008-2009.
The German market held a new all-time high and is up 10% for the year. In London traders pushed the FTSE to its highest level since December 2007, after the Bank of England said that an economic recovery in the UK is now “in sight”, predicting that growth will accelerate to 0.5 percent in the second quarter from 0.3 percent in the first three months of the year.
Asian stock markets have held on to recent gains, hovering around 5-year highs. The MSCI Asia Pacific Index is up 10% for the year and is on track for the longest winning streak since September 2009, on optimism over central bank stimulus, Japan continuing to deploy more measures to beat deflation and as centrals banks remain supportive in the US and Europe. In Japan the market held above 15,000 at 4½ year highs, on the back of a weaker yen. The pullback was despite Japanese GDP surprising, rising an annualised 3.5 percent in the three months through March, the most in a year (better than the forecast 2.7%), while fourth-quarter growth was revised to 1 percent. The Chinese market saw some bargain hunting, having its best gain in 2 weeks, as the Shanghai Composite is now only down -0.8% for the year, having fallen around -9% from its February peak. Of the around 420 companies on the MSCI Asia Pacific Index that reported their latest quarterly results since April, 53 percent have beaten analyst forecasts, according to Bloomberg.
In today’s Analyst’s Eye we discuss what happens if you get caught on the wrong side of a gap trade in Mind the Gap.
The month of May has ended lower in the past three straight years, but according to a study done by Goldman Sachs the market has never been down for four consecutive months of May in the past 80 years and the bulls are succeeding in providing support this month so far.
The Aussie market is still hovering around 5-year highs, even as the materials sector gave back half the prior week’s gains, on the back of weak commodity prices. The finance sector has held on to gains as the chase for yield has pushed that sector 10% higher in the past six weeks and the telecom and property sectors have enjoyed a similar outperformance.
The market has held around the 5200 level and this level will be key for next week. Once again the All Ords is testing the key 5160 level. The ASX200 market is flat for the week having bounced off the 5150 level. The main drivers have been banks going Ex-dividend and the weak commodity prices which have hurt the materials sector, downgrades from the mining services sector, and the Federal Budget.
Key levels for the ASX200 index next week will again be 5100 and 5250, with 5160 the key near term pivot level. Volatility remains relatively subdued, affording cheap protection for your portfolio. We are holding above the 13-day moving average and this level will be key for the trading in May.
Protection is still relatively cheap and investors can have cheap insurance for their portfolio and could look to put their money to work, while reducing their risk by using options and warrants strategies. Remain attuned to the news from overseas, particularly from the eurozone (corporate earnings), China (stimulus) and the US (corporate earnings). 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 we 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.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.