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Wall Street finished the week on a high but registered its fifth week down on a trot, and you can blame politics, the death of a legend, Coronavirus worries and tech stock profit-takers for that. Meanwhile at home, Treasurer Josh Frydenberg has come to the rescue of bank investors, the overall stock market, borrowers and the economy by proposing to kill the responsible lending law. This law has turned bank staff into virtual financial KGB operatives, excessively analysing would-be borrowers spending, before their computers say “no” to funding requests.
This is why the Treasurer (who’s currently putting his finishing touches on the October Budget) wants to change the lending story in this country. We need economic growth in 2021 and the banks (worried about responsible lending, especially since the Hayne Royal Commission painted them as blackguards) have followed the letter of the law on loans to the detriment of the economy.
The Treasurer’s actions helped our stock market finish up for the week, which puts us at odds with Wall Street, which had another down week.
Not surprisingly, financials gained 2.96% for the week, with Westpac up 7.4% to $17.58, ANZ up 6.3% to $17.93, CBA 3% higher at $66.13, while the NAB put on 6.9% to $18.37.
Going back to Wall Street, and US shares are about 10% off their highs. But given the excessive run for tech stocks, profit-taking is now taking the cream off the surge of market indexes since March 23, when sentiment towards stocks turned positive.
Ironically, tech stocks bounced, as some professional fund managers see the recent sell off as sufficient. You have to hope these guys and gals are right because it means they believe the headwinds for stocks are manageable.
Try second-wave infections, possible lockdowns, a US election with a President Joe Biden, China trade tensions and the US Congress fights over who replaces the legend of the judiciary, Ruth Bader Ginsburg, which could delay a much-needed stimulus package.
If ever you needed to be convinced that politicians care only about their pathetic jobs and progress, rather than the people (they allegedly serve) and the economy, well this should do it.
But back on the tech sell off and the buying overnight. And note how much US tech stocks have copped it in recent times.
“Shares of Apple — the largest publicly traded company in the U.S. by market cap — have dropped more than 13% this month,” reports CNBC. “Microsoft, Alphabet, Netflix, Amazon and Facebook are all down at least 7.6% over that time period.”
The most interesting sign from the US stock market on Friday was an upgrade for cruise lines from a Barclay’s analyst, and the market believed him. Think about it: in a world where second-wave infections are on the rise, how could travellers seriously be champing at the bit to jump on a Ruby Princess? But overnight, Carnival was up 8.5%, Norwegian Cruise Line rose 12.2% and Royal Caribbean put on 7.7%. Only in America!
Possibly markets might think the correction has nearly run its course. The US market is down about 10%, with the Nasdaq off 12% and our market is about 6% off its recent highs.
“We remain of the view that it’s just a correction after an excessive run up in US shares and not the start of a renewed bear market,” said AMP Capital’s Shane Oliver. “ A continued but gradual and messy recovery, along with ultra-easy monetary policy, will underpin a rising trend in shares on a 6-12 month horizon, providing coronavirus is controlled.”
I don’t expect October to be too positive with virus concerns and the US election looming. I guess a gamechanger would be a vaccine, but that’s guesswork.
This chart shows how second-wave infections are on the rise. This has to be worrying many market players, explaining why we’re seeing these sell offs.
Back to the local story and the S&P/ASX 200 rose 1.5% (or 88 points) on Friday to finish at 5964.89, which meant we put on 1.7% for the week.
What I liked
Despite everything, good news trumps bad news…
My weekly look at what I liked versus what I didn’t like is still strongly to the positive. If a vaccine shows up over the next two months, second-wave infections don’t lead to extensive lockdowns in Europe and even the US and the Yanks can get a stimulus package before it sends the economy into reverse, then stock market optimism is justified. And we’re in a buying opportunity rotation, where ignored non-tech stocks are attracting overdue support at the expense of tech stocks, which is a good sign that the economic recovery is credible.
Let’s not contemplate the opposite.