| Top Stories On Friday, 25 October 2024, the ASX gained 5 points to finish at 8211. After a rollercoaster fortnight, the market settled down over the last 3 days to be up 10 points, down 10 points and then up 5 points today. The market lacks direction, given the crosswinds are still blowing, as mentioned last week in the Not So of; – US election uncertainty (toss-up). – Chinese stimulus is piecemeal rather than a bazooka – Central Banks are cutting interest rates, but Government Bond rates are rising. – Australia’s first interest rate cut looks like it’s moving further in 2025. Some suggest the first cut could be in May. – US 3rd quarter profit results look OK so far. – Persistent inflation – High valuations – Continued geopolitical tensions We still see a GOLDILOCKS economy, which is good for markets, but there are likely to be some windy days that may cause volatility. Today, the breeze was a zephyr! Macquarie bank account holders If you haven’t downloaded the Macquarie Authenticator app on your phone or IPAD. Please contact our office!!!!! We are happy for you to share our Not So Daily Bulletin with family and friends, and if we can help them, we are also happy to chat. Market Review & Outlook AMP’s Shane Oliver provided his weekly update this afternoon Market review • Global share markets hit a rough patch over the last week on concerns about valuations amidst rising bond yields even though economic and earnings data was mostly okay. US, Eurozone and Japanese shares fell but Chinese shares were flat to up slightly. Reflecting the weak global lead Australian shares also fell by around 0.8% for the week, with falls in IT, property, industrials and retail shares leading the falls. Oil prices rose slightly but remain well down from recent highs. Metal and iron ore prices also fell slightly but gold made it to a new record high on the back of falling interest rates. The $A fell as the $US rose. • Rising bond yields and share valuations. The past week has seen a further rise in long term bond yields as investors reduce expectations for how much central banks, notably the Fed, will cut rates and price in potentially higher US budget deficits if Trump wins the presidential election. This is potentially a threat to share markets because high price to earnings multiples mean that the risk premium shares offer over bonds (measured by the earnings yield less the 10-year bond yield) is already very narrow compared to what its been since the GFC. See the Equity risk premium chart below. Market Outlook • Easing inflation pressures, central banks cutting rates, China ramping up policy stimulus and prospects for stronger growth in 2025-26 should make for reasonable investment returns over the next 6-12 months. However, with a high risk of recession, poor valuations and significant geopolitical risks particularly around the Middle East and US election, the next 12 months are likely to be more constrained and rougher compared to 2023-24. • Bonds are likely to provide returns around running yield or a bit more, as inflation slows, and central banks cut rates. • Unlisted commercial property returns are likely to remain negative due to the lagged impact of high bond yields and working from home reducing office space demand. • Australian home prices are likely to see more constrained gains over the next few months as the supply shortfall remains, but still high interest rates constrain demand and unemployment rises. Lower interest rates should help the market next year though and we see average property prices rising by around 5% in 2025. • Cash and bank deposits are expected to provide returns of over 4%, reflecting the back up in interest rates. • A rising trend in the $A is likely taking it to $US0.70 over the next 12 months, due to a fall in the overvalued $US and a narrowing in the interest rate differential between the Fed and the RBA. A recession and/or a Trump victory are the main downside risks.  Data consumption Repeated from the last Not So as these companies are delivering healthy quarterly earnings. Computer data is growing at a rapid rate and is expected to continue for some time to come. The amount of money spent on and expected to be spent until 2030 could grow by 25% per year, as noted in the graph below. The expected increase in spending on different aspects of data development will benefit a raft of companies. These include; 1. Infrastructure Microsoft (MSFT) Alphabet (GOOGL) Amazon (AMZN) 2. Hardware Nvidia (NVDA) ASML (ASML) Applied Materials (AMAT) KLA Corp (KLAC) Advanced Micro Devices (AMD) Broadcom (AVGO) Micron Technology (MU) Lam Research (LRCX) Synopsyp (SNPS) Qualcomm (QCOM) Taiwan Semiconductors (TSM) 3. Analytics & Platform Patantir Technology (PLTR) Snowflake (SNOW) Datadog (DDOG) Mongo DB (MDB) 4. Cybersecurity Crowdstrike (CRWD) Zscaler (ZS) Palo Alto (PANW) Cloud flare (NET) Sentinel One (S) Rubrik (RBRK) Unfortunately, these are predominantly US companies, and so the only way we can gain exposure to them is via the Exchange Traded Funds (ETF). The following ETFs hold some of the above stocks. I have listed the stocks and their percentage holdings in each ETF. US S&P 500 (IVV) NVDA 6.8% MSFT 6.3% AMZN 3.6% AVGO 1.7% GOOGL 1.6% AMD 0.5% QCOM 0.4% AMAT 0.3% MU 0.3% PANW 0.2% ANET 0.2% LAM 0.2% KLAC 0.2% PLTR 0.2% SNPS 0.2% CRWD 0.2%. These companies represent 22.9% of this ETF Top Global 100 companies (IOO) NVDA 11.7% MSFT 10.7% AMAZ 6.1% GOOGL 6% AVGO 2.9% ASML 1% QCOM 0.7%. These companies represent 39.1% of this ETF. Global Quality (QUAL) NVDA 6.8% MSFT 4.6% GOOGL 4.2% ASML 1.7% QCOM 0.9% AMAT 0.8% PANW 0.5% LRCX 0.5% SNPS 0.3%. These companies represent 20.3% of this ETF Vanguard International Share index (VGS) MSFT 4.4% NVDA 4.3% GOOGL 2.6% AMZN 2.5% AVGO 1.1% ASML 0.5% AMD 0.4% QCOM 0.3% AMAT 0.2% MU 0.2% PANW 0.2%LRCX 0.2% KLAC 0.1% ANET 0.1% SNPS 0.1% PLTR 0.1% CRWD 0.1% SNOW 0.1%. These companies represent 17.5% of this ETF. US Nasdaq (NDQ) NVDA 8.5% MSFT 7.8% AVGO 5.5% GOOGL 4.7% AMD 1.7% QCOM 1.2% AMAT 1% MU 0.8% PANW 0.8% LRCX 0.6% KLAC 0.6% CRWD 0.5% ASML 0.4% DDOG 0.3% ZS 0.2% MDB 0.1% These companies represent 34% of this ETF. Global Semiconductors (SEMI) TSM 12.3% AVGO 12.1% NVDA 11.8% ASML 7.4% AMD 7.1% QCOM 5.4% AMAT 4.3% LRCX 2.7% KLAC 2.6%. These companies represent 65.7% of this ETF. Global Artificial Intelligence (GXAI) NVDA 3.2% AVGO 3.2% AMZN 2.9% MSFT 2.7% GOOGL 2.6% QCOM 2.5% MU 2% SNPS 1.2% DDOG 0.6% ZS 0.5%.These companies represent 21.4% of this ETF. Global Cybersecurity (HACK) CRWD 8.5% AVGO 8.5% PANW 7.9% NET 4.2% ZS 3.6% S 2.1% RBRK 0.6%.These companies represent 35.4% of this ETF. Global Robotics (RBTZ) Nvidia is the only one at 13.7% These ETFs have benefited from and are likely to continue to benefit from the development of data technology.  Macquarie Cash Management Account (existing account holders only) From Friday 1 November 2024 You won’t be able to write or deposit personal cheques deposit or request bank cheques, deposit cash or cheques over the counter at NAB branches, make a super contribution, or make payment via cheque. Please note that any cheque received after 31/10/24 will be returned to the sender. If you haven’t downloaded the Macquarie Authenticator app on your phone or IPAD. Please contact our office!!!!! Financial Planning Snippets PLEASE BE VIGILANT regarding financial scamming. If anyone is requesting financial information from you (via phone, email, text, or social media), please contact us first or ask them for their ABN. Super Guarantee (SGC) for employees increases to 11.5% from 1/7/24 Concessional super contributions increases from $27.5k to $30k from 1/7/24 Commonwealth Seniors Health Care card has seen the income limit increase to $152k(couple) $95.4k (single). If you are of Age Pension age and don’t have the card, please let us know. Other Stories – The US jobs report is out tonight. The market expects 120,000 jobs and an unemployment rate to remain at 4.1% Broker Target Price changes Target Prices should be viewed as a compass (the general direction) rather than a GPS destination. Ord Minnett Brambles (BXB) decreased from $20.80 (highest broker) to $20.60 (still highest broker) Transurban (TCL) decreased from $13.40 to $13.20 Morgans ANZ increased from $25.95 to $26.11 BHP decreased from $48.30 (highest broker) to $48 Brambles (BXB) increased from $17.95 to $18 CBA increased from $96.13 to $96.81 CSL increased from $315.40 to $330.75 Seek.com (SEK) increased from $25.80 to $26.80 TCL increased from $12.31 (lowest broker) to $12.65 (still lowest broker) Morgan Stanley JB Hi Fi (JBH) increased from $54.70 (lowest broker) to $67.60 Wesfarmers (WES) increased from $55.70 (lowest broker) to $60.70 Macquarie Aristrocrat Leisure (ALL) increased from $55 to $67 (highest broker) Orora (ORA) increased from $2.45 (equal lowest broker) to $2.80 TCL decreased from $13 to $12.67 Bell Potter/Citigroup ORA increased from $2.55 to $2.80 Transurban (TCL) decreased from $14.30 to $14.20 UBS CSL increased from $330 to 4340 Tracking changes for 2024 Upgrades 354 Downgrades 241 Core Watchlist Index (changes since last Not So) The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95 Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index increased from 99.77% to 97.89%. Dropped form highest point since 13/2/20. Overall Earnings Per Share (EPS) FY24 remained at -0.29% FY25 decreased from 5.15% to 5.00% Most expensive – CBA 142.4%. Least expensive – Nine Entertainment (NEC) 67.7% The CORE Watchlist has 10 (13) stocks trading above 100%; they are; ALL AMC ANZ CBA JBH MQG NAB RMD WBC WES, lowest number ever is 0, highest is 14. While 2 (1) is trading below 85% (the highest is 18, and the lowest is one). NEC NXT (Figures in brackets are last Not So). STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 7 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest is 2. CPU current price $26.23 Broker range $27.70 to $32 COL current price $18.16 Broker range $18.80 to $21 CSL current price $293.69 Broker range $310 to $345 NXT current price $16.01 Broker range $19.40 to $21.20 ORI current price $17.42 Broker range $18.85 to $21.50 STO current price $6.93 Broker range $7.50 to $8.70 WOW current price $32.69 Broker range $35 to $39 Banking Index (changes since last Not So) Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. The Banking index increased from 123.1% to 123.7%. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is slightly increased dividend payments and still attractive yields. PLUS FRANKING. FY 24 % FY 25 % FY26 % ANZ 166.0 5.27% 166.3 5.27% 167.8 5.29% CBA 465.0 3.25% 475.0 3.32% 487.3 3.38% NAB 168.0 4.32% 169.6 4.36% 170.4 4.37% WBC 165.0 5.18% 155.4 4.88% 154.3 4.80% MQG 632.3 2.83% 688.0 3.08% 729.3 3.13% Dividend expectations for BHP and RIO. The forecasts below are for the full year. FY24 cps% FY25 cps% FY26 cps% BHP 216.83 5.59% 227.00 5.86% 200.8 4.74% RIO 711.67 6.66% 745.17 6.98% 709.2 6.01% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) US VIX (Fear) Index increased from 18.03 to 19.08 The normal levels are (10 to 17). The VIX has settled again. Iron Ore decreased from $101.35 to $99.40. Last month, it bottomed at $89. Copper decreased from $4.45 to $4.35, reaching a 12-month high of $5.08. It bottomed in early August at $3.95. Copper is needed for the electrification of the energy system. Gold decreased from $2744 to $2739 A new ATH of $2,772.60 earlier this week AUD/USD decreased from 67c to 66.22c. Recent low point 62.9c. Maybe low 70c in 2024 CHN/USD Yuan increased from $7.10 to $7.125. If the Yuan strengthens again the USD, the prevailing view is the Chinese is likely to be sustainable. We will wait and see. Asian markets – UP US 10 year Bonds increased from 4.08% to 4.19%. Long-term rates may not move much lower due to traditional yield curve. German 10 year Bonds increased from 2.19 to 2.27%. Japanese 10 year Bonds decreased from 0.961% to 0.95%. Highest since Oct 2011 1.106%. Official interest rates increased to 0.25% Aussie Bonds 10 year Bonds increased from 4.28% to 4.42%. Recent high 4.95% Oil prices decreased from $69.68 to $70.31 – simmering Middle East issues. Tungsten – China price remained at $340mtu. The European range remained at $320-$345mtu. This week & next week Last, “Not So” opened in 7 Aust states (excl Tas), US 7 states (California, Massachusetts, Virginia, Colorado, Connecticut, New York & Pennsylvania), Indonesia, Bulgaria, Sweden and Italy This week is coming – In the office, October reviews. Next week – In office, October reviews – out Thursday Happy 28th wedding anniversary to my wife, Christina Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
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