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ASX up 5.4%, S&P 500 up 3.9%

Asset Allocation

Markets have strongest week in months, ASX up 5.4%, S&P 500 up 3.9%, stimulus on again
 
The ASX 200 (ASX:XJO) delivered its strong week since April, finishing 5.4% higher despite finishing flat on Friday.

It was a similar story in the US, with the S&P 500 adding 0.9% on Friday and 3.9% for the week.

The theme of the week was stimulus, with the Australian Federal Budget delivering big for corporates and President Trump seemingly cancelling and re-engaging on a ‘massive’ fiscal stimulus package every few days; on Friday he boasted of an even bigger package than the Democrats had been proposing.

The energy sector benefitted most from the recovery, finishing 9.0% higher with Woodside Petroleum Ltd (ASX:WPL) a standout.

Similarly, the more cyclical financials sector adding 7% behind a strong week from the major banks, National Australia Bank Ltd (ASX:NAB) +6.9%.

Construction and engineering group Cimic Ltd (ASX:CIM) reported a stronger than expected $474 million profit for the nine months, revenue growing 8% in the quarter as economic restrictions were loosened around the world; the share price added 9.2%.
 
Financial stability review, technology rallies, fund managers in demand
 
If the Federal Government delivered a rosy outlook for the economy, the RBA delivered the difficult truth in their Financial Stability Review.

According to the central bank the $100 billion Job Keeper wage subsidy is estimated to have reduced business failures by 4,600 in the financial year, but the pain isn’t over yet.

They have also suggested business failures will rise as deferrals end with as many as 15% of small businesses not having enough cash on hand to meet their monthly expenses.

Anyone visiting in a local shopping strip in Victoria is well aware of the many ‘For Lease’ signs emerging.

On a more positive note, the technology sector showed signs of a return to recent highs adding 7.5% for the week, Elmo Software Ltd (ASX:ELO) finishing 25% higher and leading the index.

Whilst M&A activity continues to grow in the financial services after Morgan Stanley’s decision to purchase Eaton Vance, Janus Henderson Group (ASX:JHG) and AMP Ltd (ASX:AMP) potential Australian targets finishing 5.6% and 4.0% higher.
 
Takeaways: It’s a buyer’s market, COVIDs uneven playing field, industry funds under pressure
 
It’s becoming increasing apparent that COVID-19 has created an uneven playing field for businesses around the world.

Economic shutdowns are benefitting larger corporates due to their ability to access capital markets, large cash holdings and inability to cut costs with limited penalties.

Investors need to understand who the creditors of their companies are before the pressure really hits in 2021.

This uneven playing field is creating a buyer’s market for mergers and acquisitions, with energy, financials and healthcare stocks most likely to benefit following an extremely difficult period.

In the IPO world the opposite is occurring, being a seller’s market, with smaller companies benefitting from huge demand as investors struggle to find any growth amid ASX large cap blue chips.

With a flood of new microcap and smaller cap strategies boasting incredible returns, it’s never been more important to know what you own.
 
The week ahead sees the beginning of third quarter earnings reports in the US, an update on Australian unemployment and Cleanaway Ltd (ASX:CWY) holding their AGM.

I’m expecting fireworks at the latter and a strong update for the third quarter.




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