Volatility Records, Week Ahead | Caltex

9 April 2018

Global markets fell sharply on Friday as US President Donald Trump’s latest tariff threat on Chinese imports once again fuelled increasing concern over a US trade war with China. Gao Feng, China’s Commerce Ministry spokesman, told a news briefing in Beijing, according to Reuters. “If the United States announces an additional US$100 billion list of tariffs, China has already fully prepared, and will not hesitate to immediately make a fierce counter strike”.
 
Volatility has surged since February, with many market commentators highlighting the markets are as volatile as they have ever seen in their investing career. We decided to take a further look at the stats.
The current intraday swings are a world apart from the market from 2017, where volatility remained subdued.  Since the first of February, there have been 7 trading sessions where the S&P 500 have lost more than 2% in a trading session, out of 44 trading sessions, equating to 16% of all trading days.  In the 1215 trading sessions (nearly 5 years) before February, there were a total of 18 trading sessions where the S&P 500 lost more than 2% – about 1.48% of all trading sessions.  One way of looking at this would be to say that there have been 10.5 times as many 2% down days since February than the average for the last 5 years.

 
Once again, we reiterate medium term investors should remain calm during periods of heightened volatility, which are likely to throw up longer-term investment opportunities.
 
For the week ahead, US corporate earnings season kicks off later on in the week, with the major banks being first to report profits. Key to a continuing bullish outlook has been expectations that first-quarter US corporate earnings will surge, and that a raft of dividend increases and stock buybacks will be announced.

 
Stock in Focus: Caltex (CTX:AX)
CTX shares have been on a downtrend after reporting what was a pretty solid 2017 full year result. The market reacted more to CTX’s announcement that it will aim to take over all its 433 franchises retail sites by 2020 at an anticipated cost of $100m to $120m.

The retail fuel market continues to be a very challenging industry and CTX have been proactive in looking at ways to add value through their supply chain and have focussed on growing premium fuels and non-Fuel sales. However, we believe with a growing number of electric vehicles, there will be a long-term headwind for the industry.  Given the difficulties facing the fossil fuel industry over the long term, we downgrade our recommendation on CTX to a HOLD.

Australia & New Zealand Market Movers
The Australian share market was flat on Friday (ASX 200 index +0.00%). CSL and Commonwealth Bank were the biggest drags on the index, while BHP and Woodside Petroleum were among the gainers.

The New Zealand market was higher on Friday (NZX 50 index +0.35%) led by Sky Network Television bouncing back and Orion Health surging 20% after it confirmed it's considering sale options. Outside the benchmark index, Orion Health jumped after there was media speculation of a trade sale which spurred the health software developer to confirm today it was pursuing "potentially significant transactions". In other news, retirement village operator Summerset Group said its first-quarter sales of occupation rights dropped 16% but the company said it remains on track to deliver 450 new homes over 2018 as sales increase.

 
3 Things Markets Will be Watching this Week
1.                 Global politics remain in focus with tensions rising between the US and China as they impose trade tariffs on each other.
2.                 Earnings season begins in the US again later this week, with the major banks being first to announce quarterly profits.  
3.                 Important US inflation (CPI) data is released on Thursday.

 

Have a Great Day,

Team

Global markets fell sharply on Friday as US President Donald Trump’s latest tariff threat on Chinese imports once again fuelled increasing concern over a US trade war with China.

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