Peter Switzer: Hello and welcome to Switzer Investing Insights brought to you by nabtrade, and this week we want to look at the outlook for November, but we always start by looking at the month before. Paul?
Paul Rickard: Yeah, Peter, look, a little bit negative in October. The markets just went into the red marginally. Still very healthy gains year to date. If I go to the components of the market, Peter, you can see that the returns for the Top 20 stocks, the Midcap 50 stocks, which are stocks ranked 51st to 100, and the Small Ordinary stocks ranked 101 to 300. Look, again, nothing really does stand out there, but all parts of the market are up, but some of those parts are still lagging a little bit.
Peter Switzer: All right, Paul, let's look at the important changes in the industry sectors. There's some really interesting stuff there.
Paul Rickard: Yeah, there is here and it's really a standout month for healthcare, Peter, up over 7%. And that's largely to do with CSL and ResMed. And if you haven't been along CSL, your portfolio is going to be underperforming in October. And chances are, because health care's the best performing sector this year, and CSL is now the second biggest company by market cap, your portfolio is underperformed for the year. So this is really a CSL story.
Paul Rickard: Industrial is also positive, names like Transurban, Sydney Airport and Brambles live that up. The big sectors are, financials are down, particularly the end of the month on the back of the ANZ end result. But also we saw materials, the BHP and Rio is also down, so look, say all sectors in the green year to date, but a bit of a mixed performance during the month of October.
Peter Switzer: Yeah, rate cuts aren't good for financials, Paul. And one thing I will say, if people haven't got CSL or ResMed in their portfolio, they haven't been listening to you and me for last two years I'd say. All right, let's go to November and the international outlook.
Paul Rickard: Yeah. And I think this is really where the rubber hits the road because what's been leading our market has been the direction from offshore, Peter, so let's continue to look at the factors that could impact the market in November.
Paul Rickard: The first thing to do is to acknowledge that the U.S. market's at an all time high and it's done that despite all the noise about things like impeachment and the trade war and what will the Federal Reserve cut rates and all those types of things, and we've had a reporting season, which has been okay.
Peter Switzer: Yes. When it was expected to be quite negative, wasn't it?
Paul Rickard: Yeah. Look it hasn't been brilliant but it's been better than some very low expectations and the market is sitting at an all time high. So I think that's the first thing to acknowledge. The Federal Reserves probably signal that now rates are on hold. It hasn't ruled out a cut, but I think the markets have given up expectations of another cut this side of Christmas and probably early to next year, so we're going to see a bit more ... Yeah, it's now data dependent to use that phrase.
Paul Rickard: Clearly Europe has still been pretty depressed with remains moribund. China, we've seen slowing growth rates there. So this is a hole where equity markets is all about the U.S. and I guess in many things, it comes down to the U.S./China trade dispute, peter, because despite all the other factors, the U.S. market's on high and the markets want this dispute solved, don't they?
Peter Switzer: Yeah, you're right, Paul and I think the fact that you've got a trade deal heading in the right direction should be inked as President Trump said, in the not too distant future. You throw in the fact that the Federal Reserve has been cutting interest rates and you're right, earnings season has been better than expected. Pull all that together. That's not a bad result considering all the negatives that have been hanging over the market.
Paul Rickard: The other interesting thing, Peter, of course is just in timing. I mean we've sort of gone through the crazy months of-
Peter Switzer: September, October.
Paul Rickard: ... September, October and we're now in November, so we might come back to that. Let's just move on to ... Let's look at anything happening here in Australia. I mean the Reserve Bank has cut three times. It's now appears to be on hold again, it's a lot more pressure for government stimulus as opposed to any further cuts and interest rates. We're sort of halfway through the AGM season, so that'll sort of pan out for the rest of November. And look at, the issue with AGMs is not that there's physically a meeting, but of course it's a chance when companies update the market about how they're trading, so you can get both good and bad messages out of AGMs. So something to watch out for.
Paul Rickard: And we've got the completion of sort of the major bank profit reporting season. I think the other factor, Peter, is we still have very cashed up investors and they've had so much cash thrown this year through dividends and all of the other things. And look, our market just doesn't seem to want to go down despite how many of us might think it looks overvalued.
Peter Switzer: Yeah. I think in many ways our market looks like it's a Greyhound in the box, just waiting for the box lid to come out so that they can fly out of the out of the boxes. And I think the trade deal will be the most important thing for that.
Paul Rickard: And as we come into Christmas, Peter, sort of a Santa Claus rally. What I mean, I mentioned before we're sort of through the scary months of September and October.
Peter Switzer: Yeah. I think that the Trump team will be working on trade deal phase two across Christmas and if they get some really big news and I think they'll want it, they'll get most of this trade stuff out of the way so they can concentrate on the election campaign. And they'd love to think that the market's still going up and that the outlook for the economy is improving because they have had made some progress on trade.
Paul Rickard: And as you've said, President Trump is the most sort of market focused president we've seen. He tweets when the U.S. market hits all time highs. And he does take a bit of credit for that.
Peter Switzer: And the market likes that.
Paul Rickard: And the market likes that, so I think our direction of our market, we're still in the hands of the U.S. and at the moment, if the U.S. looks like it wants to take the market higher.
Peter Switzer: Yeah. And I also think that the Aussie economy is slightly improving and that's why the Reserve Bank is holding back on interest rates at the moment. If things don't improve, they will come again. That's our wrap up for November. Thanks for joining us on Switzer Investing Insights brought to you by nabtrade.