|Summary: Negative macroeconomic sentiment is rife, but the market keeps rising anyway. Why? As a leading indicator, the market is factoring in the improved earnings outlook.|
|Key take-out: Strong production numbers and a stable iron ore price has fuelled the big miners, while the major banks continue to rise on expectations of higher returns.|
|Key beneficiaries: General investors. Category: Economy.|
Fair to say there is a hugely positive bias at the moment and, as funny as it might sound, it is beginning to feel a little like 2003 all over again.
I’m not foreseeing a major four-year bull market dominated by the resources sector, but the market keeps going up despite everyone thinking it won’t. Up 226 points, or 4.3%, in the past 12 days. Fact: We are currently in a bull market.
Negative macroeconomic sentiment is disguising it. You also have to remember that the market is a leading indicator, which means it will factor in forecasted earnings if in a good mood and go from there. It will be buy the rumour (improved economy) and sell when it all gets rather heated. Add the fact that there has been a fair bit of deleveraging going on in the past five years, and there is a case to build for a positive outlook.
What is going to cause the market to rally?
I have been saying it for a long time: a low cash rate historically tends to fuel a housing rally, which then fuels spending, and away we go thanks to the economic domino effect.
Two themes are dominating the market at the moment – annual general meetings and quarterly production numbers.
The production numbers from the big boys, BHP and Rio, have been good without being great, but their share prices have risen due to promises of FY production figures and the iron ore price holding up strongly.
Banks keep on going
A quick one on the banks – they just keep going up.
What we also know about the banks is that they will give investors what they want, that being bigger dividends. They will also be the major beneficiaries of a housing boom.
Until there is a bust, I hear you say? Well yes, but sitting on the sidelines waiting for a crash which could be five years away will cost you big time in opportunity cost. Collectively, the banks are up 29% this year to date, outperforming all other banks, except the Japanese (up 39.4%).
It’s all about being positioned in the right companies, in the right sectors at the right time.
Major upcoming events for the banks
ANZ FY13 Result – Tuesday, 29 October
NAB FY13 Result – Thursday, 31 October
WBC FY13 Result – Monday, 4 November
CBA 1Q 14 Update – Wednesday, 6 November
Who says you have to go up the risk curve to get exceptional returns in the market?
This is an extract from the newsletter Premiership Portfolio by Sam Fimis of Paterson Securities available here www.premiershipportfolio.com/.