Boring safe stocks have run their cours


  • The geared recovery sectors are bottoming in the US – Energy, Small companies, Airlines some of the best performers – same will happen here.
  • Financials also leading the recovery – up 5-6% in the UK and leading in the US as well. Our banks appear to be bottoming.
  • Resources not left behind – BHP up 5% in the US, RIO up 4%. Fund managers concerned about their relative performance need to be neutral weight resources in the recovery.
  • Energy lows are in – The oil price up 24.93% overnight with Brent Crude up 10.9%. All the more reason to buy energy stocks for recovery. The next headlines are going to be about economic restart and oil demand will pick up again. The worst headlines are behind us.
  • Boring quality survivor stocks beginning to underperform – Staples and Utility sectors both fell in the US overnight despite an over 2% rise in the overall market. COL fell 3% yesterday on sales numbers up a whopping 13.1%. Boring safe stocks have run their course.
  • The NASDAQ is now less than 10% off its high – Down 9.4%. By comparison the S&P 500 is still 13.4% off the top and our market is 25.1% of the top. Technology in the US has a life of its own. Microsoft up 4.5%, Apple up 3.3%, Facebook up 8%. Can we just carve the big US technology stocks out of the S&P 500 please, so we can see what the real market - the market that relates to our market - is doing.

  • Gilead comments about their remdesivir anti-viral being the go-to treatment for COVID-19 (pops patients out of bed earlier and reduces symptoms) blamed for the rise in the market overnight. It obviously helps the COVID-19 sentiment. Share price only up 7.5%. It’s a factor, not the factor. This is the main factor – the peak is passed in Western Countries, and for those fearing a ‘Second Wave’…it hasn’t happened in China:

  • US Q1 GDP number at minus 4.8% is irrelevant – It is history. And the Q2 number will be down 40%. But that will be followed by a GDP number up 40%, so what do you react to? Well you don’t react to the March Q, and the market didn’t.
  • Which sectors struggled with the virus – What the Q1 GDP number in the US did tell us was which sectors have struggled the most with coronavirus and as such have the most earnings risk – they include – elective surgery, healthcare supplies, dentists, motor vehicles, furniture, clothing, footwear, transport, hotels, restaurants, consumer spending, imports, business investment and mining capex. But we sort of knew all that already. What it does highlight is the sectors that will recover the most when it goes away and that is perhaps the more important information at this stage.
  • High inflation number irrelevant – Inflation up 2.2% YonY in Australia yesterday. Irrelevant. It’s a historic number and the RBA is not being driven by inflation at the moment. Plus the next quarterly inflation number will see inflation of minus 1.9% and deflation of minus 0.4% YonY. So not relevant.
  • ANZ – Henry has written about it. No dividend but no capital raising. Broker research sees the banks as undervalued now. Sector bottomed hard yesterday. (Love the idea of a 'Deferred Dividend'...they mean "No Dividend" don't they? Or are they going to pay double dividends next time - if so it is a 'Deferred Dividend' - some analyst has to ask the question today and doubtless will).
  • Fed comments – OK not surprising – Of course rates on hold at Zero to 0.25%, probably forever. Other comments include using all tools at their disposal to support financial markets, expect to see an unprecedented drop in GDP (we knew that), the worst is ahead (knew that), vows to continue support (the Fed put in place). Generally supportive of the market although the market dipped a bit immediately after the statement.
  • US Results – 194 out of 500 S&P 500 stocks have reported. 64.5% above expectations. Generally speaking the market hits a bit of a peak mid-results season, but with COVID-19 around, its not the driving factor. But its behaving itself.


  • In the Growth SMA we are adding to our recovery stocks this morning and are pretty much ‘All in” again. Some of the recovery plays include WEB, FLT, CWN, WPL, WOR, JIN. IEL, APX, ALU, ALL. Nothing in big size.
  • In the Income SMA we are putting in some REITs on yields over 5-6% – Rare opportunity. But we are more interested in a capital recovery in a recovery than the yield quite honestly. With the banks passing on dividends we have to look for capital gains in that fund as well.
  • We are ignoring the risk of “Second Wave” for now. It would be terrible for the markets if we had one, but it hasn’t happened in China and we’ll handle it when it happens. If it does we’ll have come out like a rat on fire in a drainpipe. But assuming it doesn’t happen for now. Seems a safe assumption and if you don’t do things because of “What ifs” in the stock market you paralyse yourself.

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