Market Summary: 9 to 13 October

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And still we wait, is the best way to sum up the current state of New Zealand post the election. As media coverage continues to show shots of closed doors and secret meetings, political pundits continue to speculate on what Winston Peters and New Zealand First might do. What is still clear is that Winston is not to be rushed and that it is still a split decision.

However the New Zealand market has shrugged this off and moved higher and higher this week, with the NZX50 breaking through the 8,000 mark for the first time ever. The index is up more than 17% for the year to date. There are a number of positives in the New Zealand economy that are contributing to the confidence in our market, however, it is important to look at a couple of things when we talk about these exceptional numbers.

Firstly, the New Zealand NZX50 is a gross index. This means that it isn’t calculated purely by share price changes but includes dividends as well. As a high yielding market, the dividend portion is quite a significant contribution to performance.

Secondly, the 17% climb includes the recovery from the end of last year, which included four consecutive months of declines for the index. From the high point in September to the low point in December the NZX50 dropped over 8%. Bearing in mind, global markets during this period climbed higher so some of this 17% of gains has been a game of catch up.

Thirdly, there have been some exceptional performances from a small number of stocks on the index, which have boosted the index to this level. Market darling a2 Milk has more than tripled in price for the year and now has the fourth largest market cap on the NZX, at more than NZ$5.5 billion. At the beginning of the year, it was just $1.5 billion. Peer Synlait Milk, still a relative newcomer to the NZX50 has also had an exceptional run, up 140% for the year to date. Xero is another company that has seen a meteoric rise this year, almost doubling in price and is now at the highest level it has been since the lofty highs of 2014.

Globally speaking, the US market has also continued to rise, with the three main indexes hitting record highs during the week. There are around 250 trading days in the US this year and the Dow Jones has hit 48 record closing highs so far, with almost 50 trading days to go. Third quarter earnings season is now underway and if companies perform as well as expected, there could be plenty more record setting days to come.

Earnings season is now underway and expectations are for the S&P500, the US’s broadest index, to have its third quarter of earnings growth. Expectations are for EPS growth to average 2.8% for the quarter. With valuations so high at the moment, investors will be looking for companies to meet earnings forecasts as well as for positive outlooks for the remainder of the year.

A further catalyst for boosting the index came mid week with the release of the US Federal Reserve minutes. The tone was a lot more cautious than the market was expecting with some members of the Fed believing that it will take longer than previously thought for inflation to return to the targeted 2%. Prior to the release of the minutes, the December rate hike seemed a mere formality, however, the market is now questioning whether the Fed will get its third rate hike of the year away.

Across the Tasman, we have seen some better than expected data in sentiment surveys this week. The NAB Business survey was again strong for the month, although retail was again the weakest sector. The surprise came in the Westpac Consumer Confidence survey which showed a sharp upswing in sentiment. For the first time since November 2016 the index reading was above 100, reflecting that there are more optimists than pessimists.

We will be keeping an eye on reporting season this week and of course the formation of the government in New Zealand. Third quarter inflation is due out in NZ as is the Australian labour force data.

And still we wait, is the best way to sum up the current state of New Zealand post the election. As media coverage continues to show shots of closed doors and secret meetings, political pundits continue to speculate on what Winston Peters and New Zealand First might do. What is still clear is that Winston is not to be rushed and that it is still a split decision.

However the New Zealand market has shrugged this off and moved higher and higher this week, with the NZX50 breaking through the 8,000 mark for the first time ever. The index is up more than 17% for the year to date. There are a number of positives in the New Zealand economy that are contributing to the confidence in our market, however, it is important to look at a couple of things when we talk about these exceptional numbers.

Firstly, the New Zealand NZX50 is a gross index. This means that it isn’t calculated purely by share price changes but includes dividends as well. As a high yielding market, the dividend portion is quite a significant contribution to performance.

Secondly, the 17% climb includes the recovery from the end of last year, which included four consecutive months of declines for the index. From the high point in September to the low point in December the NZX50 dropped over 8%. Bearing in mind, global markets during this period climbed higher so some of this 17% of gains has been a game of catch up.

Thirdly, there have been some exceptional performances from a small number of stocks on the index, which have boosted the index to this level. Market darling a2 Milk has more than tripled in price for the year and now has the fourth largest market cap on the NZX, at more than NZ$5.5 billion. At the beginning of the year, it was just $1.5 billion. Peer Synlait Milk, still a relative newcomer to the NZX50 has also had an exceptional run, up 140% for the year to date. Xero is another company that has seen a meteoric rise this year, almost doubling in price and is now at the highest level it has been since the lofty highs of 2014.

Globally speaking, the US market has also continued to rise, with the three main indexes hitting record highs during the week. There are around 250 trading days in the US this year and the Dow Jones has hit 48 record closing highs so far, with almost 50 trading days to go. Third quarter earnings season is now underway and if companies perform as well as expected, there could be plenty more record setting days to come.

Earnings season is now underway and expectations are for the S&P500, the US’s broadest index, to have its third quarter of earnings growth. Expectations are for EPS growth to average 2.8% for the quarter. With valuations so high at the moment, investors will be looking for companies to meet earnings forecasts as well as for positive outlooks for the remainder of the year.

A further catalyst for boosting the index came mid week with the release of the US Federal Reserve minutes. The tone was a lot more cautious than the market was expecting with some members of the Fed believing that it will take longer than previously thought for inflation to return to the targeted 2%. Prior to the release of the minutes, the December rate hike seemed a mere formality, however, the market is now questioning whether the Fed will get its third rate hike of the year away.

Across the Tasman, we have seen some better than expected data in sentiment surveys this week. The NAB Business survey was again strong for the month, although retail was again the weakest sector. The surprise came in the Westpac Consumer Confidence survey which showed a sharp upswing in sentiment. For the first time since November 2016 the index reading was above 100, reflecting that there are more optimists than pessimists.

We will be keeping an eye on reporting season this week and of course the formation of the government in New Zealand. Third quarter inflation is due out in NZ as is the Australian labour force data.


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