Second Week of June
The major banks lead the market higher for the sixth straight week. All four of the banks pushed towards their three-month highs after an array of positive analyst upgrades came this week on the companies. Westpac (WBC.AX), National Australia Bank (NAB.AX) and ANZ (ANZ.AX) improved by approx. 11.5% whilst Commonwealth Bank (CBA.AX) added 9% for the week.
For the week, the ASX200 gained 4.2% to just under the 6000 level.
The Australian dollar also rose above US70c for the first time since January.
Top/Bottom Performers (in ASX200)
- Pilbara Minerals +36.5% (PLS.AX)
- Unibail-Rodamco-Westfield +28% (URW.AX)
- Adbri +27.6% (ABC.AX)
- Gold Road Resources -14.4% (GOR.AX)
- Saracen Minerals -11.2% (SAR.AX)
- Silver Lake Resources -10.7% (SLR.AX)
The Aussie and Asian Markets headed into the weekend with caution but a large beat in expectations of US Data proved this unjustified. With American Markets marginally in the green at the beginning of the session to continue its winning streak, equities really picked up momentum when the expected negative news came out that what not nearly as bad as expected – signalling an overstatement from all analysts and therefore the markets of how bad the economic shutdown was.
The main indicator that shocked markets was the Jobs Data, Economists forecasted a drop of 7.5 million job last month but May revealed a 2.5 million increase in the number of people on the payroll. This brought the unemployment down from almost 20% to just 13.3% in the US. Leading to a more than 2% gain in all the American indices with the best performer being the Dow with gained 3.1% or over 800 points.
Momentum names (stocks that have performed the best, and therefore are expected to continue to do so under this theory) were significantly sold off on Friday despite the rally. The ‘Dow Jones Market Neutral Momentum Portfolio’ dropped 9% on Friday, its worst day since 2002 and subsequently and unprecedented sell-off throughout the Coronavirus drop in the market. The fund goes long the highest momentum stocks and shorts the lowest momentum stocks of the index. Whilst Small Caps outperformed their larger adversaries with the Russell 2000 (US Small Cap Index) gained 4.6% further painting the picture of the risk-on tone of markets.
The Dow was up 6.8% for the week, the S&P 500 gained 4.9% and the Nasdaq gained 3.4%. The tech-heavy Nasdaq is now back to all-time highs and actually up 9.3% for the calendar year.
Play of the Week – Buy-Now-Pay-Later Sector
This week saw Zip Co (Z1P.AX) announced the acquisition of the New-York based QuadPay Inc as a part of its global expansion. The stock improved over 50% for the week. The widely considered ‘Blue-chip’ of the sector AfterPay (APT.AX) also had a boost of 8.7% for the week to sit at $50.61, which many view as expensive – especially considering the company’s negative earnings to date. Investors are always aiming to find the next market leader before it occurs and the same strategy could be applied to this sector. With smaller firms such SplitIt (SPT.AX), Sezzle (SZL.AX) or OpenPay (OPY.AX) still yet to reach saturation in the market, there could be a lot more upside ahead for the smaller buy-now-pay-later companies.
Johns Lyng Group has signed an agreement with buy-now-pay-later operator Zip Co. Limited
Also benefiting from the better-than-expected data was the commodity Oil. US WTI Crude Oil moved 5% higher on the back of the Jobs Data before cooling off marginally to just under $40.
Gold cooled off with the improved sentiment, falling 2% to sit at $1,690US.
Iron Ore continues to act on its own accord with the ongoing supply issues out of Brazil.
Copper, the barometer for the health of the overall economy, also improved 2% as GDP growth now looks set to return.
Here in Australia, market will be shut Monday for the public holiday. Therefore, Australian Shares will have two days of price action to react to once opening bell hits Tuesday morning.
Financials and Energy Stocks lead the charge on Wall Street on Friday so expect Australian companies to follow suit once we open again. Travel Stocks should also see a boost, in particular the global players, as Trump eased off on a proposed ban on Chinese airlines to the US.
The ASX is likely to start of the week with a kick start of approx. 100 points or close to 2% to ~6,100. Signifying that the market is sitting at 85% of its value at the all-time-highs before the economic shutdown.