Marcus Today SMA | October 2020 Update
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SMA PERFORMANCE MARCUS TODAY GROWTH SMA (MT0001)
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OCTOBER MARKET COMMENTARY
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- Executive orders to re-join the Paris climate accord, reverse withdrawal from WHO, repeal Muslim travel ban and reinstate the Dreamers program.
- A new 12-member coronavirus task force.
- A return to coronavirus restrictions but with a goal to minimize the kind of economic damage caused by the first lockdown measures.
- A stable message on beating the virus from leaders at all levels and sides.
- A deficit-financed economic recovery bill sent to Congress.
- Delayed progress and roadblocks on the tax-increase plans.
- Expansion of Obamacare in the face of split congress making a public health option difficult.
- A different approach to trade. Biden is expected to be more open to deals but could also be more effective in pressuring China by galvanizing allies.
- No trade deals until after coronavirus stimulus and infrastructure investments.
- Strength in tech and healthcare thanks to the split senate.
- Decreased volatility caused by a drop off in Presidential tweeting.
- A last-ditch effort from Trump to make life difficult for Biden over his last two months in office – may include the firing or targeting of perceived enemies and the pardoning of controversial allies.
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- AGM season kicked off in typical fashion with a split of confessions and upgrades. Companies are making plans for a permanent switch to virtual AGM’s after having their hand forced this year. Retiree investors that used to attend major company AGMs for the tea and cakes, will go hungry.
- Volatility is coming down as the US election result injects certainty. A president that doesn’t tweet every thought takes away a significant market risk. The VIX volatility index is back to 20 from 80 but is still sitting well above the long-term average.
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- The RBA reduced the cash rate by 0.15% to 0.10% at the November meeting on Melbourne Cup day and announced it will purchase of $100 billion of government bonds of maturities of around 5 to 10 years over the next six months. Estatye agents broke out the champagne.
- A pretty routine FOMC meeting (US Federal Reserve meeting) did not mention the election, but pledged once again to do whatever they can and use their “full range of tools” to support and sustain the US economic recovery.
- Since a Biden win became likely, both US 10-year bond yields and the US dollar have dropped (meaning the AUD has risen) on fading hopes of stimulus, the prospect of a long “lame-duck” period without a clear winner (bad for business confidence), and the chances of a more serious approach to virus (lockdowns).
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- The Australian Government showed their hand with “Maximum Stimulus” as they announced the Federal budget. Infrastructure capex, housing construction, jobs market stimulus, household income stimulus (which will perpetuate the online retail boom), tax incentives, are all being factored in.
- RBC Capital Markets joined Westpac in upgrading Australian GDP forecasts post the budget.
- A record 33.1% jump in Q3 US GDP, up from the 31.4% fall in the second quarter, is what $3 trillion worth of stimulus buys you. Most of the rebound came from “personal spending” which surged thanks to government stimulus cheques and unemployment benefits from the federal CARES Act.
- Vaccine news through the month included Fauci saying the US is in a “Bad Position”, there will be no vaccine until January at the earliest (two more months of exponential case growth), and that things are unlikely to get back to normal until 2022. The vaccine announcement from Pfizer was described by Fauci as extraordinary.
- Australia signed a vaccine deal with Pfizer shortly before their trial results became public. The suggestion is that Australia could receive vaccines for aged care and essential workers by March 2021.
- Most of the S&P 500 reported Q3 numbers. Of them, 89% saw a positive earnings surprise and 79% reported a positive earnings surprise. If the numbers stay as they are, this will mark the highest level of ‘earnings surprise’ since the metric was first tracked by Factset in 2008.
- Gold spent the month treading water, finishing 0.4% lower despite the continued stimulus and political uncertainty.
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- The oil price fell 11% in October as a rampaging virus further dulled the global growth outlook. Since the election in early November and on the recent vaccine news the oil price has bounced 18.06% in two weeks.
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- The banks rose through the start of the month, but ultimately dropped back down off the top of its trading range on the back of some uninspiring results from the ‘Big 4’. Post the vaccine news the bank sector has popped 11.1% on hopes for higher interest rates which expend margins and may accelerate the return to higher payout ratios. Payout ratios used to be 95% before APRA stepped in after the outbreak of COVID-19. They are currently 45-50%.
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- The iron ore price continued to come off the top. BHP and RIO fell with it.
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