Pre-Open Data
Key Data for the Week
Key economic data released this week:
- Wednesday – AUS – Retail Sales fell 1.1% in September, however, above expectations for a 1.5% fall. The fall continued the 4.0% decline in August.
- Thursday – UK – BoE Interest Rate Decision
- Thursday – US – Fed Interest Rate Decision
Australian Market
The Australian sharemarket fell 0.1% yesterday in a mixed session of trade amid early US election results. The Information Technology sector was the best performer, as stocks lifted alongside NASDAQ futures; WiseTech Global added 3.9%, Appen gained 4.3% and Nearmap lifted 5.6%.
The big four banks were the major drags on the market; Commonwealth Bank and Westpac both fell 2.0%, while NAB and ANZ lost 1.1% and 0.9% respectively.
The Materials sector suffered heavy losses due to a fall in the price of iron ore; Rio Tinto and BHP fell 2.2% and 1.2% respectively, while Fortescue Metals slipped 4.6%. Goldminers also weakened; St Barbara lost 3.3% and Newcrest Mining fell 0.9%.
Consumer stocks also weakened; Woolworths slipped 0.7%, despite the company providing a sales update that saw Q1 sales growth of 12.3%. Treasury Wine Estates fell 3.1% as China listed wine as a target of its planned import ban.
Travel stocks outperformed as NSW declared it will open its borders to Victoria from 23 November; Sydney Airport rose 2.0%, Webjet added 5.0% and Flight Centre jumped 6.1%.
The Australian futures market points to a 0.07% rise today.
Overseas Markets
European sharemarkets rose on Wednesday, with the broad based STOXX Europe 600 up 2.1%. HelloFresh gained 7.4% as investors view the company likely to benefit from renewed lockdowns. Vonovia lifted 5.4% after the company provided a nine-month revenue update and stated the coronavirus would not have significant impact on its operations and confirmed guidance for 2020. French Industrials strengthened, Eiffage, Veolia Environnement and Vinci all lifted between 1.9% and 2.3%, while UK company CRH slumped 4.4%.
US sharemarkets also strengthened overnight, as votes from the presidential election continued to be counted, with neither Trump nor Biden able to secure the 270 electoral votes needed to win. The Health Care, Communication Services and Information Technology sectors all posted strong gains, while Materials, Utilities and Financials all underperformed.
Facebook and PayPal led the gains, up 8.3% and 8.1% respectively, while Amazon, Alphabet and NVIDIA all added between 6.0% and 6.3%. Bristol-Myers Squibb and Illumina rose 6.8% and 5.0% respectively to lead Health Care stocks, while MasterCard and Visa lifted 4.0% and 3.0% respectively.
By the close of trade, the Dow Jones rose 1.4%, the S&P 500 added 2.2% and the NASDAQ gained 3.9%.
CNIS Perspective
Are stock markets overvalued? If you are looking at the common metric for stock valuations, next year’s (forward) price to earnings ratios, currently at historical highs, suggests stocks are expensive and should revert to their mean. However, looking simply at the reversion-to-the-mean valuation models doesn't account for the impact of record low bond yields.
Analysis of actual dividends paid out by S&P 500 companies concludes that stocks are attractive relative to bonds because they have a higher dividend yield. The dividend yield on the S&P 500 well exceeds the yield on the benchmark 10-year US Treasury Bond by its highest margin in nearly five decades.
Historically, 10-year Treasury yields have almost always been higher than S&P 500 dividend yields, with a handful of exceptions since the 2008 financial crisis. Like most market participants, we struggle with the disconnect between the strong stock market and the economy. This provides some explanation for the current buoyant equity valuations.
Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.
Disclaimer
The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.
Cutcher & Neale Investment Services Pty Limited ABN 38 107 536 783 is a Corporate Authorised Representative of Cutcher & Neale Financial Services Pty Ltd ABN 22 160 682 879 AFSL 433814.
