Stock Market Monthly Report - December 2019
XJO DOWN 179
Hope gives way to fear
The Australian market followed the US market throughout December, and considering how dependent we are on China, and international trade, is it really of any surprise.
Having begun the month at just inches from all time highs the market started the month with a 2 day pull back induced by anxiety around the pending US/China trade deal causing a 250 point pull back.
With very little domestic news to impact the market, we weakly followed the US and slowly clawed back the 250 point loss over the next 8 sessions.
However, from the 18th on and the market sitting at the 6850 level, going into the Xmas break, there was very little appetite to push the XJO to new highs so the market drifted lower, ending the month with a surprising and unnecessary 122 point drop on the final day to finish the year 6681, with the XJO gaining 20% for 2019.
As we have seen now over the last few months, International commodity prices have provided the resources sector with underlying support, and once again Financials being a drag on the market bringing the total drop in the Financials sector to 7.31% since late October.
Key Index Data
- XJR (Resources) – up 1.5%
- XMM (Metals & Mining) – up 2.9%
- XMJ (Materials) – up 1.4%
- XFJ (Financials) – down 1.99%
KEY ECONOMIC DATA
- Aus Manufacturing Shrank
- Aus Trade Surplus reduced
- China Exports Shrank for 4th consecutive month
- Aus employment data rebounded strongly
DOW JONES IND AVG 28,109 – 28,051:UP 429
US -China Trade Deal: Propels Markets Higher
DJI 12 MONTH CHART
With the US market sitting at all time highs, a few incendiary US / China Trade War tweets from President Trump spooked the market from the opening bell of the month inducing traders to lock in recent profits and sending the market down over 775 points in two sessions.
However, as we have seen now so consistently throughout 2019, positive economic data (US Unemployment rate dropping to 3.5%) not only domestically but also Internationally (China Manufacturing beat market expectations) provided confidence to the market, with investors viewing the pull back as a great buying opportunity resulting with a four session rally from the the 3rd till 6th of December regaining nearly all the market had lost.
From the 5th on the US Market basically didn’t look back gaining 3.11% over the next 17 sessions, and achieving 6 new “all time highs”. This all came down to the long awaited announcement that a phase 1 deal of the US/China trade deal had been agreed with by both parties.
What is more impressive about this rally, and perhaps a sign of the year ahead, is that despite potentially contentious political issues such as the US Hong kong Democracy Bill being passed and signed by Trump, & the House officially voting to impeach Trump, the market didn’t blink. Investors looked at the headwinds on a case by case basis, and assessed that neither would impact on either US Economic growth and corporate profits coming into the new year.
This glow of confidence enabled the market to drift sideways during the festive period to finish the year @ 28,538, up 24% for 2019.
Key Economic Events and Indicators
- US unemployment dropped back to 3.5 %
- US Housing Market Index surged to highest level since 1999
- US Housing Starts Surged
- US Industrial production beat market expectations
- US GDP 2.1%: Showing Solid growth
BPT- Beach Energy – Re Cap : $2.50
Our first T/A report on Beach Energy /BPT, was back in April 2018 when the stock was @ $1.25. Since then despite being knocked around along with many stocks in the commodity sector by the noise around the US/China trade War/negotiations, the stock has continued to perform well from an operational perspective, with the share price reflecting the phenomenal performance.
With the present geopolitical uncertainty in the Middle East, potentially having a huge impact on the oil price, providing BPT with huge revenue upside, and from a fundamental perspective the stock still effectively cheap from a sector context it leads us to the very difficult question ( and one of our favourite) should one average/pyramid up?
- Pay’s Dividend
- 100% Fully Franked
- Strong Cashflow
- Increased Sales Revenue
- Increased Gross Profit
- low P/E Ratio
OIL PRICE UPDATES: Strong US Data + US China trade deal = Gains
WTI Crude – Gained $5.74 : $55.47 – $ 61.21
December was a phenomenal month for Oil, building on what has been a great year and quarter for the black commodity.
The month started badly after the US announced record Oil production which pushed prices down over 5% in a session.
However from that point on the Oil price supported by both positive US domestic data, and international news confirming the successful negotiation of the US /China Phase 1 trade deal combined to propel prices to highest levels in 3 months.
Despite some final trade deal anxiety causing a session drop on the 20th, overall strong economic conditions helped the price to drift back up with light Xmas trading volume to close the month and year at $61.21.
The commodity price numbers below clearly outline the strength in all International Oil categories, with WTI (West Texas Intermediate)
- 10.68 % Gain for December
- 13% Gain for the Quarter
- 34% Gain for 2019
Key Oil Price Influences
- US Achieved record Oil production
- US Rig Numbers declined
- Iran production dropped a further 5% bring total drop in 2019 to 25%
- OPEC agreed to lower production by 500,000 bpd till March 2020