The S&P/ASX 200 (INDEXASX: XJO) is expected to climb when the market opens this morning as ASX futures point to a positive start to the week. Here’s what you need to know.
JobKeeper extended, RBA bearish
The ASX 200 finished the week 1.3% higher after gaining 0.6% on Friday. Materials (4.4%) and Energy (4.9%) were the standouts as commodity prices remained in a sweet spot of surging demand but supply chains struggling under COVID-19 restrictions.
The Federal Government extended its JobKeeper program to support the ailing Victorian economy, but the RBA is now flagging a much longer and weaker recovery.
The highlight of the week was News Corp (ASX: NWS) reporting its profit result, adding 11.8%, after revealing strong growth in its Dow Jones business.
The S&P 500 finished the week 2.5% higher and now sits just 40 points off its all-time high. Apple Inc (NASDAQ: AAPL) once again drove markets after delivering a strong result and announcing a stock split, improving 4.6% for the week and now making up close to 7% of the index. Despite growing calls of a tech-bubble, it seems the sector is sending us a message, we best heed their call.
Is the market overvalued?
There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know
The much bandied about Donald Rumsfeld (I prefer Mark Twain) quote is making the rounds again amid another round of lockdowns, the subject; a vaccine. It’s clear that Australia and New Zealand are holding out hopes for a vaccine that may never arise if history is anything to go by.
But what if it does? Are were prepared as investors? At this point, the technology sector, including the likes of Afterpay Ltd (ASX: APT), Amazon Inc (NASDAQ: AMZN) and Microsoft Corporation (NASDAQ: MSFT), suggest that work-from-home conditions may be with us much longer than expected.
On the other hand, if a vaccine does come, current market valuations may be too bearish. Despite many experts suggesting both the ASX 200 and S&P 500 are overvalued given uncertain earnings, a closer look shows one important truth. The best companies may be trading at eye-watering multiples, but the majority of the market is yet to recoup losses from March. Any sign of vaccine would likely see this valuation gap shrinking as cyclical businesses, like ASX banks and traditional retailers, catch up to the leading tech names.
The most important week of the year
The media sector may be relevant again after News Corp delivered unexpected gains. Despite reporting a $401 million loss for the quarter, its Dow Jones business, which owns The Wall Street Journal and Barron’s, reported a 13% increase in earnings and 23% growth in digital-only subscriptions.
News Corp owns 60% of REA Group Ltd (ASX: REA), which delivered $820.3 million in revenue, down just 6% on 2019, and a 9% fall in profit to $268.9 million. The result was a 7% cut in the dividend, however, management reported online searches for property are higher than ever and REA continues to command 60% of the market.
This week stands out as one of the most important of the year, with the Commonwealth Bank of Australia Ltd (ASX: CBA) set to announce its dividend (and also its earnings). I’m expecting CBA’s dividend to come in below the 50% payout cap applied by APRA, potentially disappointing yield-hungry investors.
Other important reports are AMP Ltd (ASX: AMP), potentially reinstating its dividend, Ansell Limited (ASX: ANN) reporting just how well it has done selling gloves and Telstra Corporation Ltd (ASX: TLS) who should maintain its dividend as the demand for work-from-home functionality continued to spike.
This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.
