Today, the S&P/ASX 200 (INDEXASX: XJO) is expected to open lower despite mixed results overnight.
The US market ended its winning streak overnight, with the Dow Jones retreating 0.6%, the S&P 500 down 0.4%, and the tech-focused NASDAQ once again immune from any weakness, adding 0.1%. The catalyst was another spike in COVID-19 cases in nine US states, with several hitting daily records, at the same time Beijing is dealing with an outbreak of its own. On a positive note, US housing starts rose unexpectedly, up 4.3%, boosting the hopes of a ‘V-shaped’ economic recovery.
The picture wasn’t much prettier in Asia, however, with the Nikkei 225 off another 0.6% after the Japanese economy saw exports slide 28% in May, but those specific to the US fell over 50%.
Locally, the ASX200 finished in positive territory on Wednesday, adding 0.8%, but it will take a negative lead into today’s trading. On Wednesday, the strength came later in the session as investors moved into traditionally defensive assets including the property and consumer staples sectors, with Woolworths (ASX: WOW) up 1.8% and Wesfarmers (ASX: WES) up 1.5%. The supermarkets were the market’s key beneficiaries and should remain stalwarts within all portfolios.
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Talkin’ Tech Stocks
Once again, it was all about the technology stocks this week with Carsales Ltd (ASX: CAR), up 6%, and Oracle Corporation, down 3%, updating markets on Wednesday. CAR offered some positive news with revenue growth for the financial year expected to be up 1% on 2019, on an adjusted basis, but down some 5-6% on reported numbers. Net profit was similarly expected to fall 6-9% to between $134 million and $138 million. The inclusion of Adjusted vs. Reported figures will be as important as ever as markets enter the most difficult reporting season in a decade in July.
US-listed Oracle, which offers cloud-based technology and enterprise planning software, fell just short of guidance, with revenue down 6% to $10.4 billion as management blamed stalling investment from its core hospitality, retail and transport customer for the weakness. The standout was 32% year-on-year growth in sales of its Fusion Enterprise Resource Planning system.
Australia’s leading respiratory care technology manufacturer, Fisher and Paykel Healthcare (ASX: FPH) rebounded from recent weakness, up 5%, buoyed by the spike in cases.
All three of these companies remain global leaders in their fields and are solid investment opportunities post COVID-19.
Cash is King
Overnight, Bloomberg reported that assets held in Money Market Funds, a high-yielding cash alternative for US investors, had reached an all-time high in May, hitting $4.6 trillion. The previous high was $3.8 trillion during the GFC.
This flood of cash goes some way to explaining why the market remains in a Kangaroo pattern with capital flowing back into markets on any weakness. It’s clear to me that investors should be taking heed of the Reserve Bank of Australia’s recent comments regarding the speed of the market recovery post-COVID-19, but particularly those nearing or in retirement, with the importance of hedges — consider things like ETF Securities’ GOLD ETF (ASX: GOLD). These alternative assets growing by the day.
The economic outlook remains difficult at best, with reports that one-in-six Brisbane and Sydney apartments are now vacant following years of excessive construction, the issue being that it only takes a single landlord to sell at a cut price to see the market collapse quickly. These are difficult times for Lend Lease (ASX: LLC) and other builders.
On the other hand, the ‘Great Reset’ appears to be in full swing as retailers, restauranteurs and consumer-facing businesses around the world are seeking a new deal with landlords who have benefitted from ever-increasing rent levels; many are simply refusing to reopen without discounts, Myer Holdings Ltd (ASX: MYR), City Chic (ASX: CCX) and Premier Investments Ltd (ASX: PMV) are among the biggest culprits.
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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