Market Falls Despite Retail Traders Pushing Up Indices
By Dale Gillham | Published 03 August 2020
With the US presidential election occurring in November, the media frenzy around the candidates President Trump and Democrat Joe Biden is only just getting started. One thing that stands out like the proverbial sore thumb is that the media do not like Trump, and I must admit he often does not act, as we would expect of a President to behave. So, are his actions good or bad?
Are the actions politicians good or bad for the economy?
When I think about it, I am reminded of a quote by former US President Abraham Lincoln, who said: “These capitalists generally act harmoniously and in concert to fleece the people”. In Australia, over the past few decades successive governments have sold off our essential services such as banks, utilities, telephone supply networks and ports among other services, so much so, that there is very little left to sell. These services were privatised or sold off to corporations with the mantra that it was being done for the good of the nation. But is this really the case?
We are all paying more for our services and getting less in return, as corporations pursue higher profits. We have also sold farms and other property to international companies and individuals, so much so that ordinary Australians are rightly questioning whether our wealth and quality of life is eroding. Like or hate President Trump, one thing that is certain is his goal, which is to put the USA first, and he is making tough decisions to enforce this. So, is it wrong to want to protect your country and way of life?
COVID-19 has been a big wake up call for many countries including Australia regarding the heavy reliance on global supply chains among other concerns. Prime Minister Scott Morrison has made some tough decisions of late and talked about doing what is right for all Australians, which is a good start, but I know I am not alone in saying that many more tough decisions must be made to protect the future of Australia and its citizens.
We need to support our farmers, manufacturing, resources, environment, our businesses and for Australia to be owned by Australian’s. From what I am hearing, many Australian’s support this view and say it is long overdue. COVID-19 is just the latest challenge we face, and, no doubt, we will be challenged again in the future. That said, I am not suggesting our politicians copy Trump but maybe they need to take a leaf out of his book and do things a little differently moving forward, so as a nation we can protect our way of life.
What were the best and worst performing sectors last week?
With the market falling late in the week, all sectors ended in the red with the best performers being Consumer Discretionary and Communication Services as they were barely in the red, followed by Consumer Staples and Materials, both of which were down around half a per cent. The worst performing sectors include Energy, which was down over 5 per cent followed by Financials down 2.68 per cent and Healthcare down 1.97 per cent.
Looking at the ASX top 100 stocks the best performers last week included ALS Limited, which is a surprise as it closed up over 9 per cent yet its PE ratio is nearly double the market average and its EPS is relatively flat. Therefore, the fundamentals for this stock are not really supporting the move, which has seen the stock shoot up by 100 per cent since March of this year. My guess is that retail investors are pumping up the stock for fear of missing out, which also appears to be the case for Fortescue Metals, which closed the week up almost 7 per cent, while Magellan Financial Group ended the week up just over 4 per cent.
The worst performers included IOOF Holdings, which was down over 16 per cent followed by AMP down over 14 per cent and Qantas ended the week down over 11 per cent.
What's next for the Australian share market?
The All Ordinaries Index has continued to move cautiously and is still lacking any real direction. On Friday, the market fell nearly 2 per cent and, in doing so, it means the index has only risen 3 per cent over the past two months. As I mentioned last week, the market is moving more cautiously than confidently, with momentum in many of the top 100 companies slowing while retail traders are pushing up stocks in the Small Ordinaries and Emerging Companies Indices. When this sort of situation unfolds, it means the market is running out of steam and is likely to fall away.
Once again, investors should exercise patience rather than jump in, as there will be plenty of time to profit once the market settles. Given that the All Ordinaries Index has failed to trade above the high of 6,314 points set on 9 June, it is looking unlikely that there is sufficient time for the market to trade up to my target of around 6,600 points. Right now, the pendulum is swinging towards the probability that the market is falling away into the next low, which will be below 5,800 points.
For now good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.