US Market Hits New High, Arvida Lifts Retirement Villages

26 May 2017

Daily Market Insights

Global markets were higher overnight, and the US market (measured by the S&P500 index) hit a new record high as the US Federal Reserve released minutes from its last meeting.
 
Minutes from the last Fed meeting earlier this month showed most members supported a hike in the federal funds rate in June provided the economic data met expectations and showed officials were planning to gradually shrink the central bank's balance sheet after years of expanding it through quantitative easing. While a rate increase is still expected next month, with markets pricing in close to an 80% chance of a rate hike, the US dollar continues to retrace given the lack of details.
 
We have highlighted in the past that interest rate hikes in the US will be a key theme for markets to watch in 2017. Two major impacts from higher US rates will be a higher US Dollar, and a lower price of Gold, in our view.
 
Closer to home, shares in retirement village business Arvida Group (ARV.NZ) were higher after the release of its full year profit results which we discuss below.
 
Stock in Focus: Arvida Group (ARV.NZ)
Arvida Group shares were higher as it posted a net profit of $53.7 million in the 12 months ended March 31, up from $24 million a year earlier. The positive sentiment helped bolster other retirement village operators such as Ryman Healthcare and Metlifecare. 

 
Looking at some of the details the result was more mixed, with better revenue, depreciation, interest and tax offsetting greater-than-forecast wage inflation. Arvida has also entered its first greenfield village build agreement, to be built in Nelson.
 
We currently do not cover Arvida, and have held Metlifecare as our top pick in the retirement village sector. One development we are watching closely is a potential slowdown in the property market (particularly in Auckland).

While we are positive on the aged care sector given the tailwinds of an ageing population, a property market correction is a shorter-term risk for the retirement village sector given a large proportion of profits are driven by the resale prices of units in villages. 
 
 
 
Australia & New Zealand Market Movers
The Australian share market was slightly higher on Wednesday (ASX 200 index +0.15%) as investors more or less shrugged off a credit rating downgrade on China by Moody’s. While the ASX traded in a tight range, industrials, consumer staples and healthcare stocks saw support while miners & utilities sold off. In stock news, shares in G8 Education came out of a trading halt which saw the share price fall sharply then subsequently recover. CFCG Investment partners reduced their second investment tranche into G8 to only 31.8m (versus a previous commitment of $149m), and G8 say they will now look to raise another $100m by way of an institutional placement of shares instead.

 
The New Zealand market was higher yesterday (NZX 50 index +0.5%) as a number of earnings results saw flows into shares. Among companies to make positive announcements were retirement village company Arvida, and insurance company Tower which narrowed its first-half loss as its underlying earnings improved, offsetting yet another unexpected increase in the cost of the Canterbury earthquakes six years ago. Air New Zealand shares were also higher as its passenger numbers rose in April as tourists continue to flood into the country, bolstered by the timing of the Easter holiday.

 

3 Things Markets Will be Watching this Week

1.                 US political developments and whether they drive markets for another week.

2.                 Members of OPEC meet on the 25th to discuss the possibility of another oil production deal.

3.                 Minutes from the last US Federal Reserve meeting are released Thursday.

 

Have a Great Day,

Team

Global markets were higher overnight, and the US market (measured by the S&P500 index) hit a new record high as the US Federal Reserve released minutes from its last meeting.

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