Market Matters Morning Report Monday 4th July 2016

Morning Report 04/07/2016

Market Matters Morning Report Monday 4th July 2016

Will the election result effect Australian stocks?

A question that we are sure many subscribers are asking this morning but one which is tough to answer, especially until after Tuesday. This morning the $A has fallen 0.5c to 74.50 against the $US, which is not a significant reaction. Unfortunately, the obvious conclusion is; it cannot be good for Australia's economy when the likely outcome is a bunch of politicians set to fight amongst themselves for the next few years as opposed to focusing on running our great country.

For the ASX200 to rally significantly we generally require an inflow of foreign investment – which is aided by political stability. Clearly, we are a long way from this point at the moment and we’re likely to see overseas funds remain on the sidelines. However, all is not lost when we consider that the UK's FTSE has rallied over 13% since its knee jerk sell off after BREXIT. Markets do not always unfold as the majority expect they will.

The $A Monthly Chart

Longer term share prices move with the fundamentals of a company but short term market noise can create opportunities as we recently witnessed with BREXIT. We do not believe this election result will produce a significant market knee jerk reaction but will, unfortunately, most likely lead to continued underperformance from Australian stocks on a global basis.

We continue to expect US equities will rally strongly to fresh all-time highs into 2017 while the best we can see from the ASX200 is for us to be dragged up into the 5500-5600 resistance area.

ASX200 Banking Index Weekly Chart

US S&P500 Monthly Chart

Our strong opinion remains that picking the right stocks will be key over the next 6 months, and being nimble enough to take profits, but also cut losses/manage positions into weakness will be key. A great example being our recent purchase of CSL given it spiked down after BREXIT. We are now looking for a test of $118-$120 in coming months.

CSL Limited (CSL) Monthly Chart

Summary

While we remain bullish equities over coming months unless we see some significant change in sentiment the banking / financial sectors will not be leading the charge. We believe anticipated strength in equities will be spurred by stimulus and not by valuations which feel full. UnforUnfortunately, initial feeling is that the weekends messy election result will lead to continued relative underperformance from the Australian stock market.

Watch out for VOC which we may purchase today.

Overnight Market Matters Wrap

The US markets continued to finish on the positive side last week, finishing up 19 points to 17,949, whilst the S&P5400 finished up 4 points to 2,103. For the week the Dow rose 3.15% and the S&P500 up 3.22%, the biggest weekly rise since November 2015.
Crude Oil put in a good close for the week, finishing up 66c (+1.4%) to US$48.99/bbl. For the week, it was up US$2.25 (+4.65%).
Gold managed to finish the week up US$18.40 (+1.4%) on the back of a weaker US$. It has now managed to put in five weeks of gains.
Following on from the election over the weekend, the A$ has fallen from a close on Friday of 75.00, opening up this this morning on a low of 74.44, currently trading at 74.68.
The ASX 200 is expected is indicating it will open up 38 points (5,284) from Fridays close, but expect to see a possible weaker market on the opening, given the results coming in from the election, indicating a possible hung parliament.

Regards,
The Market Matters Team
28-34 O'Connell St
Sydney, NSW 2000

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 4/07/2016. 8:00AM.

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