Stock Market Down 5% Since Last Week

Despite the chaos of cancellations and disruptions in the travel and tourism sector over the last two years due to COVID, we are starting to see signs that this sector is getting back to business. Last week Qantas announced plans to deliver the world’s longest commercial flights, which would see Australian’s fly from Sydney to London in just over 19 hours and New York in a similar timeframe. This is certainly better than the 36 hours it now takes most people to travel to London from Sydney. While we will have to wait three years for these flights to commence, it does show Qantas is bullish on the future of travel, as it has ordered 12 new planes to achieve its goals.

Qantas set to soar as it acquires AQZ

Qantas also announced last week that it would acquire the remaining 80 per cent stake in ASX listed Australian carrier, Alliance Aviation Services (AQZ). Alliance has a fleet of 70 aircraft that mainly service the resources industry in WA and Queensland. Qantas has owned 20 per cent of this airline for the last three years and is the company’s main client, as they have a long term agreement that has Alliance operate several QantasLink services.

While Alliance shareholders are yet to approve the deal, on the surface this acquisition appears to be good for Qantas, as it opens up new routes for the airline while keeping costs down. Interestingly, AQZ shares traded down around 15 per cent the prior week but following the announcement on 5 May, they shot up 27 per cent, although it only closed for the week where they were the week prior. While Qantas shares have fallen around 3 per cent since the announcement, what this deal demonstrates is that Qantas is looking to the future and while I don’t normally recommend airlines, I think Qantas might just be about to take off.

What were the best and worst performing sectors last week?

All sectors ended last week in the red with the best performing sector being Energy down by 0.07 per cent followed Utilities down 0.30 per cent and Consumer Staples down 1.23 per cent. The worst performing sectors included Information Technology down 5.99 per cent followed by Communication Services down 4.67 per cent and Consumer Discretionary down 3.91 per cent.

The best performers in the S&P/ASX top 100 stocks included Magellan Financial Group up 5.76 per cent followed by Amcor up 5.38 per cent and Reliance Worldwide up 4.29 per cent. The worst performing stocks included ARB Corporation down 20.65 per cent followed by Goodman Group down 14.10 per cent, REA Group down 13.34 per cent and Domino’s Pizza down 11.98 per cent for the week and over 40 per cent this year.

What's next for the Australian stock market? 

The Australian stock market has continued to be volatile and until last Friday, it looked as though it was holding up nicely given that price was contained within the range of the prior week’s trading. Then the market fell just over 2 per cent in price on Friday to break below the previous weeks low, resulting in the All Ordinaries Index closing down 3.33 per cent for the week.

This current volatility is causing many investors concern that further falls may be imminent and while this is certainly a possibility, I believe the current bearishness is only short term. I say this because I suspect the current volatility is being caused by the big end of town who are using the heightened sentiment around China’s COVID crisis, interest rates and the CPI to push the market around.

Unfortunately, the big end of town are known to do this, as they profit from ordinary investors, given that most tend to react more on emotions rather than solid analysis. It is for this reason why I strongly disagree with superannuation funds being able to lend stock to hedge funds so they can short the market and profit from the fall.

Despite the continued volatility and the fall on the market last week, I have not changed my previous analysis that the market could rise for two to four weeks before falling into a low mid-year. That said, it is possible that it could fall for two to four weeks into the low earlier than expected. Right now, it is reasonable to expect the low to come in over the next couple of weeks. If this is the case, then there is some great buying opportunities just around the corner.

While I acknowledge my opinion may be overly bullish, as my analysis indicates that the market is looking good for the second half of 2022, it doesn’t mean that I am not prepared for further falls, which is why I encourage all investors to protect their capital in the event the market does fall away.

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 bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.