The S&P/ASX 200 (INDEXASX: XJO) is tipped to open slightly higher on Wednesday morning, following strong results overnight. Here’s what you missed…
A Kangaroo market
US news channel CNBC reportedly coined the phrase ‘Kangaroo’ market with commentators giving on predicting its direction. The term best describes the daily experience of investors as the market ‘bounces’ around.
The ASX 200 experienced its strongest day in10 weeks, adding 3.9%, pushed higher by energy (5.8%) consumer discretionary, where Webjet Ltd (ASX: WEB) improved another 11%.
The S&P500 and NASDAQ rallied 1.9% and 1.8%, respectively, supported by a stronger-than-expected US retail sales result, hitting a record of 17.7% in May. It seems those investors who remain employed are now cashed up and seeking to renovate, build pools or travel more domestically.
Caterpillar Inc (NYSE: CAT) was a primary beneficiary of the news, up 5%, as was London’s Ashtead Group plc (LON: AHT) +9%, both of which lease machinery and materials to the construction industry.
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What’s the trend?
As reports of retail investors outperforming professional hedge fund managers spread around the globe, it’s becoming increasingly difficult to predict how this rally ends. Markets are seemingly as predictable as ever, but more volatile than at any time in decades. It is times like these when investors, experienced and new, need to focus on the importance of asset allocation and diversification. In fact, it has never been more important.
Questions like how much are you willing to lose? Or do you know where your greatest risks are? These questions tend to go unanswered.
According to FN Area, some 50% of all companies covered now have Buy ratings by the broking fraternity. This hasn’t happened since the depths of the GFC.
On a more positive note, despite most experts predicting Australian leader Seek Ltd (ASX: SEK) would struggle to recover from the spike in unemployment, the share price is now up nearly 100% since march lows, rallying 7% alone on Tuesday. It is still 20% below its high.
Diversify
Tuesday saw noteworthy updates from two very different companies, Adobe Inc. (NASDAQ: ADBE) and Orora Ltd (ASX: ORA). Adobe provides a ubiquitous document software service and the latter a leader is an aluminium cans, glass and wine bottle product in Australia and New Zealand.
ADBE reported a 78% increase in sales over the 12 months to May, with management noting that spending in April and May exceeded traditional Christmas levels. Orora, on the other hand, reported it had returned $600 million to shareholders from the sale of its Fibre Packaging business, using the remainder to effectively become debt-free. The Orora share price rallied 5% as a result. Despite being different businesses, both offer unique growth opportunities for investors.
Finally, Viva Energy Ltd (ASX: VEA), owner of Geelong’s refining plant, rallied 15% after reinstating its on-market buyback as they seek to return profits from the property sales to shareholders; a rare capital return amid a sea of cancelled dividends.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.
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