Written by Sergeo Domtchenko
It seems like the bears still have their claws well entrenched in the market. The bears are not letting go. All the weekly gains evaporated as the ASX 200 plummeted by more than 5% on Friday. Marking the single most significant daily drop over the past five weeks. Friday’s decrease is making investors wonder whether this bearish trend is here to stay?
Does this week mark the start of a bear market?
Before we race to any conclusions, our readers must understand this week’s Market Sensitive Events (MSEs). MSEs provide investors explanations of why the market moved either up or down for the week.
Market Sensitive Events over the Past Week
- The Federal Government announced that all students would return to regular classes on May 11.
- New data continues to support a slowing in the infection rate associated with COVID-19.
- Boris Johnson returned to office on Monday; the same day that the U.K. recorded its lowest daily mortality rate in over a month.
- Amazon continued to break records as its share price hit a new all-time high of U.S. $2474 on the back of some very impressive Q1 2020 financials.
- Apple reported a 7% increase in iPhone sales during Q1 2020.
- Oil prices continued to recover this week, with WTI immediate rising by over 19% to U.S. $19.78 (at the time of writing).
- Coles and Woolworths announced quarterly revenues gains of 13% and 8.5%,respectively (mostly because of the grocery sector).
- The unemployment rate in the U.S. rose by another 3.8 million to exceed 30 million this week.
- Automotive sales for the past month in the U.S. totalled $0 (not a joke).
- NAB carried out an A$3.5 billion capital raise to increase its reserve fund pool.
- Westpac and ANZ look to carry out capital raises in the coming weeks.
- NAB slashed its dividend by 60%, while Westpac and ANZ suspended interim dividend payouts this week.
- Coles shares tumbled on Wednesday as it announced a 30% fall in demand for its petrol stations.
- Germany reimposed self-isolation measures as endures a severe 2nd wave of COVID-19 outbreak.
- The $AUD couldn’t escape the significant sell-off on Friday, falling to 64 U.S. Cents.
Is the bear market here to stay?
Short answer: Yes, and I expect markets to be in the red this week (opinion not advice).
We have already covered numerous times, the markets are primarily driven by the emotions of greed and fear. Friday’s market performance screams fear as the terror begins to penetrate the markets. Especially on the back of a weak U.S. earnings session and the IMF announcing that COVID-19 has cost the global economy more than U.S. $100 trillion. Moreover, the RBA is forecasting that Australia’s GDP will contract by 6.7% in 2020. Therefore, it is vital you are across the significant COVID-19 developments. Lets breakdown what we know.
Newly released data continues to show a slowing in the number of new COVID-19 cases. Markets will be focusing their attention on possible treatments/trial results and the hopes of easing social restrictions. Gilead is at the forefront of COVID-19 clinical development. However, even if Gilead’s treatment works miracles the damage to the global economy is irreversible.
Thus, the bulls and bears will be in a fight for the week. The bulls are launching their second assault (reopening the economy and relaxing restrictions). However, the bears will likely emerge victorious.
2. Local Bank Earnings
Westpac (WBC) and Macquarie Group (MQG) will be releasing earnings data for the past quarter on Monday and Friday, respectively. Investors will be keeping a close eye on dividend policies. If we do see worst than expected results, can we expect continued losses on the markets this week?
3. Reserve Bank of Australia
The RBA will meet on Tuesday for its monthly meeting. Investors will be looking to see whether the RBA decides to loosen monetary policy even further. Many analysts are expecting that the cash rate will remain at its historic low of 0.25%. On Friday, the RBA will be releasing its quarterly economic outlook. It will be interesting to see how the markets react on Friday, based on the economic data released by the RBA and MQG’s quarterly earnings.
4. U.S. Economic Data
The Federal Reserve will be releasing quarterly economic data and its forecasts for the coming months. The main talking point will be the U.S. unemployment rate. Some analysts are forecasting that the unemployment rate will rise from 4.4% to a staggering 16.2%. Could this be the trigger point that sends global markets into meltdown?
5. U.S. Earnings Season
The likes of companies such as Electronic Arts, Beyond Meat, Disney, Mattel, General Motors, PayPal and Hilton Worldwide will be releasing quarterly financials. Dependent on the nature of the news surrounding these companies, they could have a significant bearing on how global markets perform this week.
Stocks to Watch This Week
|Stock||Trading Price||Weekly Gain|
|Corporate Travel Management Ltd (ASX: CTD)||$12.57||38.44%|
|A.P. Eagers Ltd (ASX: APE)||$4.65||31.73%|
|oOh!Media Ltd (ASX: OML)||$1.00||29.22%|
|Nearmap Ltd (ASX: NEA)||$1.48||24.89%|
|IOOF Holdings Limited (ASX: IFL)||$4.18||22.94%|
|Worley Ltd (ASX: WOR)||$8.28||20%|
|Domain Holdings Australia (ASX: DHG)||$2.57||19.53%|
|Nine Entertainment Co Holdings Ltd (ASX: NEC)||$1.37||19.13%|
|EML Payments Ltd (ASX: EML)||$2.65||18.83%|
|SKYCITY Entertainment Group Limited (ASX: SKC)||$2.33||17.09%|
ASX Announcements to Watch This Week
- Monday: Westpac Banking Corporation’s quarterly earnings results to be released.
- Tuesday: The RBA will hold its monthly meeting to decide on its monetary policy stance.
- Wednesday: The Federal Reserve will be releasing economic data for the U.S.
- Friday: Macquarie Group will be releasing its quarterly earnings.
- Friday: The RBA will be releasing its quarterly economic outlook and forecasts for the coming months for both Australia and abroad.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Sergeo Domtchenko, Associate of YIG.