Global markets were generally higher on Friday as the S&P 500 and Nasdaq closed at record highs amid continuing optimism about the US economic outlook and corporate earnings. Judging by the initial market reaction, investors have largely shrugged off Washington legislators' inability to reach a deal and avoid a shutdown of Federal government services over the weekend.
While a shutdown of the US government and uncertainly is rarely market-friendly, investors appeared too focused on earnings gains and the promise of tax-cut bolstered dividends versus the latest round of political brinkmanship. Looking historically, the median return during US government shutdowns has been exactly flat. In fact, during the last shutdown in 2013 we saw an impressive 3.1% gain in the S&P 500 market index.
It appears that for now the initial impact of the shutdown will be the delay of US economic data to be released in the coming days as these won't be published if the government remains shut. We are watching developments as they play out.
Stock in Focus: Genesis Energy (GNE:NZ / GNE:AX)
GNE shares were higher on Friday as the company released a positively received second-quarter performance update.
GNE said it had continued organic growth in LPG customers, up 27% from the prior comparable quarter, and a 24% lift in B2B electricity sales. These were offset by residential electricity and gas declines in part due to a warmer than average quarter.
The power company also said it had had a strong quarter in its wholesale segment "as the strength of Genesis’ diverse portfolio across North and South Island, thermal and hydro, enabled value creation in volatile market conditions". We have highlighted that this is a key reason for our preference for GNE over the other stocks in the NZ power generator sector.
Further, not only is GNE diverse in terms of its geographical location, but its energy production base – which includes oil. The oil price is now at a 3-year high and GNE should benefit from oil price upside. We are generally cautious on the power generator sector especially in an environment of rising interest rates, although we hold a more positive view towards GNE over its peers.
We currently have a BUY rating on GNE.
Members should look out for an updated report on GNE to be released in this Wednesday’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was lower on Friday (ASX 200 index -0.15%). on concerns around a possible US government shutdown, while the Aussie dollar is trading at a four-month high. The benchmark index was down with losses by the miners, energy and telcos overpowering strong gains by the healthcare and retail stocks. In stock news, Retail Food Group says it will vigorously defend itself against any class actions it may face, after its shares dropped further on the prospect of franchisees taking legal action
The New Zealand market finished the week on a positive note on Friday (NZX 50 index +0.21%) led by a recent rally in A2 Milk Co and as Genesis Energy rose on a strong quarterly report, while investors continued to sell down Pushpay Holdings after last year's massive gains. Trustpower also rose as it affirmed annual guidance, saying operating earnings will be near the mid-point of a $255 million-to-$270 million range. The power company has cited strong wholesale electricity prices for three earnings upgrades in the past financial year.
3 Things Markets Will be Watching this Week
1. US earnings season continues – with a particular focus on company comments around the impact of US tax cuts.
2. The US political deadlock which has resulted in a government shutdown.
3. The European Central Bank b=makes an interest rate decision Friday.
Have a Great Day,
Team