We continue to believe investor sentiment is overly negative, and urge our members not to panic in the current market volatility.
US corporate earnings announcements have also begun, and on this front global bank JP Morgan announced a better than expected result with a confident tone. Investor focus will now shift to corporate earnings announcements which will be critical to give stock markets direction, in our view. Closer to home, Australian employment data our yesterday once again surprised on the upside, indicating the Australian economy is not as bad as the pessimists will have you believe.
Corporate Earnings Season Kicked Off
Corporations in the US have begun to announce quarterly profits, and during these “earnings season” periods investor focus usually shifts from economic issues back to company profitability. Given the recent sell-off and negativity in markets, a solid earnings season will be crucial in reviving investor confidence, and we will be watching developments closely. On the earnings front, shares of global bank JPMorgan Chase were up overnight as it announced quarterly profits which beat estimates. Interestingly, JP Morgan CEO Jamie Dimon told analysts that investors were adjusting to China's slowdown, and said there were winners and losers in the commodity rout.
Australian Employment Data Shows Strength
The pessimists were wrong again, as the Australian economy delivered another strong employment report relative to expectations. This follows strong November and October periods, which were the strongest back-to-back periods since the 1980’s. The economy gave up 1000 jobs with consensus expecting 12,500 job loss for the month of December and the unemployment rate stayed steady at 5.8 per cent. The figures follow November jobs growth of 71,400, after a 56,000 rise in October, the strongest two-month period of employment growth in 28 years. We believe a trend has now been established, with 3 consecutive months of better than expected jobs numbers and it appears that unemployment is on a downward trajectory. This is very positive for the wider economy and a number of stocks in the Australian portfolio.
High employment levels means that there is generally more wealth in the economy. Consequently, consumers are more willing to spend and business undertake positive growth projects. It also provides a boost to sentiment. All these factors aid in the economic outlook for the economy. holds a number of consumer facing stocks which should benefit from the improvements in economic data. We are a vocal believer that the Australian economy is not as bad as the pessimists will have you believe. The continued improvement in the data is vindicating our view.
Chart of the Moment
Despite the recent market collapse some stocks have continued to outperform. Elders (ELD.AX) is a key holding in the Australian portfolio and it has continued to hold its value in the latest market rout. This demonstrates the importance of investing in solid companies with strong underlying thematic drivers. The ‘Dining Boom’ is set to be a multiyear theme which will continue to drive higher profits for agriculture related industries, in our view.