ASX 200 (XJO) Monday – my three takeaways from the week

The S&P/ASX 200 (INDEXASX: XJO) is tipped to rise at the open this morning after US markets closed out the week strongly on Friday.

ASX 200 finishes higher, ASX banks shares rally

The ASX 200 staged a stunning recovery, finishing 1.5% higher on Friday which led to a 1.7% improvement for the week. The financial sector, up 3.7%, contributed over half of the recovery on its own, ANZ Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) adding over 6% after the Treasurer announced that ‘Responsible Lending’ laws established in 2009 would be repealed.

These regulations effectively limited bankers’ discretion on assessing the spending habits of borrowers and according to sources have been a handbrake on loan applications in recent years. The change bodes well for stability in the property market, particularly when combined with all-time low borrowing rates.

The materials sector also recovered on Friday, adding 1.9%, as iron ore and the gold price improved, but finished the week down 2.3%. Newcrest Mining Limited (ASX: NCM), up 3%, led the way with the USD gold price fall offset by a 3% fall in the AUD over the week.

Washington H Soul Pattison (ASX: SOL) and Service Stream Limited (ASX: SSM) led the market for the week, rising 14.4% and 12.2%, respectively on company-specific news.

US markets mixed, Premier Investments reports

It was another mixed week for US markets. The S&P 500 finished 0.6% lower despite a 1.6% recovery on Friday, as signs of a slower economic recovery hit confidence. Once again, the Nasdaq outperformed, finishing 1.9% higher for the week and up 2.3% on Friday, as discussions on another US$2.2 trillion stimulus package recommenced.

Markets remain mixed, with the so-called ‘stay at home’ trade including Microsoft Corporation (NASDAQ: MSFT) and Zoom Video Communications Inc (NASDAQ: ZM) benefitting from economic restrictions.

On the other hand, more cyclical businesses including energy and financials had another tough week as COVID-19 cases continue to spike on both sides of the Atlantic. The leisure cruising sector rebounded on Friday, Carnival Cruises (NYSE: CCL) up 9.7% after research house Barclays suggested the sector may be nearing an end to restrictions as they institute extensive safety policies.

Back in Australia, the Solomon Lew-run Premier Investments Limited (ASX: PMV) reported its full-year results. The retailer revealed record online sales of $220 million, a 49% increase, which contributed to a 29% jump in profit for the financial year to $138 million.

My three takeaways from the week

As per usual, here are my three takeaways from the week:

1. Climate and energy policy in focus

My three takeaways this week start with the renewed focus on climate and energy policy. Whether it was the Federal Government putting forward an ambitious energy policy and innovation agenda or Wesfarmers Ltd (ASX: WES), it’s clear that the post-pandemic recovery will be powered by a push to a more sustainable economy. This is something Owen and I discussed in our most recent weekly video.

2. Deficits the new normal

As highlighted by ex-Prime Minister Paul Keating during the week, if there has ever been a time for the government to run deficits it is now. Keating aggressively put forward the case for a focus on saving jobs by any means necessary, putting pressure on the RBA to do much more. It is this willingness to undertake fiscal stimulus that will determine which countries recover more quickly from the second and subsequent waves of the virus.

3. Volatility is just beginning

Finally, it’s clear that volatility is just beginning. After several months of strong recovery, the ‘wall of worry’ lies ahead as economies continue to diverge. In this environment, alternative assets will play an important role, but not all are created equal.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.

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Disclosure: At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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