Australian Investment Blog

WHAT MATTERED TODAY

Another session that saw the market recover from early lows, today it was an +80pts gain from the early overseas induced sell off as buyers tipped into the early weakness. US markets pulled back overnight however futures were positive during our time zone which helped the local index tick higher. IT stocks bounced back after yesterday’s decline as did the healthcare names – rotation the play of the day.

The US Federal Reserve continue their two-day meeting tonight with Jerome Powell speaking early morning our time tomorrow. The key here is what the Fed does with its “forward guidance,” and that will determine whether the meeting is taken as dovish (and positive for stocks) or hawkish (and a negative for stocks).

Negative for stocks: Clearly the market has been running on the back of the ‘Fed Put’ or in other words, as a result of the Fed saying they’ll do whatever it takes. If that idea of the Fed Put is thrown into doubt, then stocks could see that pullback we’ve been talking about. While this is a low probability outcome, look for a change in dots that show a rate hike in 2022 – there’s pretty much no chance the Fed even hints at changes to its QE program, but if the dots show that the majority of FOMC officials see rates rising before the end of 2022, that will be taken as slightly hawkish and in a market that’s this stretched, that could cause a modest selloff.

Neutral for stocks:No change to interest rates or QE, with the Fed saying they’ll continue asset purchases “in the amounts necessary” and the dots show no rate hikes through 2022. This is broadly what’s expected by markets, and this outcome is largely priced in.

Positive for stocks: If the Fed surprises and introduces some official interest rate cap or pledge not to raise rates until a certain date – probably 2023 at earliest with a link to the inflation target of at least 2%., then that should be taken as a positive for stocks driving this rally further.

US S&P 500 Chart

Overall, the ASX 200 closed up +3pts or 0.06% to 6148. Dow Futures are trading up +76pts/-0.60%.

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE.

Smart Group (SIQ) -5%: AGM today for the salary packaging and novated leasing business with the stock coming off the boil during the session. Understandably, the business took a hit with COVID, and the first half NPAT is expected to come in around $32m, 5% below last year. The first quarter was largely unscathed by the pandemic, managing to grow earnings marginally on 1Q 2019, but a 25% hit to revenue across April & May weighed on expectations for the half. The markets expectations for a full year profit of $62m may come under pressure and explains part of the weakness today.

The company said that volumes remained below historical levels, but a rebound had been seen – vague, but suggests the sizable hit to revenues seen in the current quarter are unlikely to remain to the same extent for the rest of the year. We like the business and own it in the Income Portfolio. They have net debt of just $19m with cash around $81m so the balance sheet is in good shape, and earnings are still rolling in despite the slowdown. The sell off today likely comes as a result of some recent analyst upgrades for the full year, and the stock was strong heading into the AGM.

Smart Group (SIQ) Chart

Harvey Norman (HVN) +4.79%: shareholders rejoiced today after news they would be getting a 6c special dividend, to offset some of the pain felt when Harvey Norman pulled their scheduled 12c interim payment at the height of the pandemic. The retailer saw local sales boom with the rush for electronics helping local sales rise 17.5% in the second half. Overseas trade wasn’t as fortunate, with many stores closed for extended periods weighing on performance, with many locations still closed. With 1 month left, HVN looks in pretty decent shape for the full year results. As an aside, I bought a new laptop on the weekend from the fine establishment (yes I still go into a shop to buy things) and the pimply lad that served me confirmed they’ve been very busy, although less so in the last few weeks.

Harvey Norman (HVN) Chart

BROKER MOVES;

· Sims Raised to Buy at UBS; PT A$10.20

· GPT Group Cut to Hold at Jefferies; PT A$4.78

· Bendigo & Adelaide Cut to Hold at Morningstar

· Sims Cut to Hold at Morningstar

· GPT Group Cut to Hold at Morningstar

· Treasury Wine Cut to Hold at Morningstar

· Stockland Cut to Sell at Morningstar

· Flight Centre Cut to Hold at Morningstar

· GWA Group Raised to Hold at Morningstar

· SCA Property Cut to Sell at Morningstar

· Nine Entertainment Cut to Hold at Morningstar

· Bank of Queensland Raised to Buy at Goldman; PT A$7.17

· ANZ Bank Cut to Neutral at Goldman; PT A$20.02

· Gold Road Rated New Overweight at JPMorgan; PT A$1.95

· DMP AU Cut to Hold at Morgans Financial Limited; PT A$63.22

· Charter Hall Retail Raised to Neutral at JPMorgan; PT A$3.40

· Flight Centre Cut to Hold at Bell Potter; PT A$17

OUR CALLS

No changes today

Major Movers Today

Have a great night

James and the Market Matters team

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