The past couple of weeks have seen the pawl of smoke with investors concerned over a US default – something that was never going to happen. The consequences for the long term health of the World’s largest economy were beyond what would be a pyrrhic victory for Republican party. This will likely be revisited again down the track, but as traders, our job is to trade the here and now, not what could happen down the track.
So against this backdrop, what has been driving the Australian equity market along and into what a couple of key analysts are considering a very hot and heavy run into the back end of the year?
We have seen around $17bn of dividends returned to shareholders. Out of that, some analysts estimate that dividend reinvestment plans account for about $3bn, with the balance in cash. Personally and like many, I would be putting that money straight back into the market and positioning myself for a year end rally.
This dividend season has been very interesting, as it comes against a backdrop of very low yield in most other asset classes and in particular, cash. With few options out there, investors have actively sought higher yielding stocks, with some franking credits thrown in for good measure. This will likely be the case going forwards and as such, will provide support for the market.
Low interest rates
As above, the current low cash yield (RBA rate sitting at 2.5%) is forcing investors to move out of cash and into other asset classes – or indeed spend. Both of which are drivers for the stock market, providing a flow of money into equities, and other assets, such as property. This environment of low interest rates is unlikely to change any time soon and that being the case, the flow of money is a great backstop.
In the post GFC environment, leaner organisations are performing well, with reasonable earnings expansion. That said, improved profitability that is driven by cost cutting only has a limited life span, as there is only so much that you can cut costs. However, right now, the reward for the shareholder is there, in those organisations, providing additional support for the market.
Politically stable environment
For the first time in a number of years, Australia has a level of political stability with a majority government holding power. This is an incredibly important factor that cannot be overlooked. The first challenge for the administration is to maintain confidence and part of that is by following through on its election mandate. Prime Minister Abbott is presenting draft legislation to repeal the Carbon Tax, one of the mainstays of his campaign. Getting this over the line, will send a very clear message to the nation and in particular business, that the government is driving its policy agenda through, boosting confidence further.
Plus additional cashflow
This market has been ripe for covered call writing and as such, investors have enjoyed a sustained run of profitable trades. The past three months have seen us have 14 from 16 winners in the covered call space. This month is pushing along in the same fashion. If you have been holding back, now is the time to start, as this market is poised to pop higher. And here is the thing – it will do so with or without you involved – if you want the opportunity and potential to profit from this, rather than watch it go by, come check out some free education on how you can get started now, and be in the market quickly, confidently and with upfront and immediate cashflow.
Australian Equity Market – Final Thursday!
The last Thursday of the month is generally options expiry in Australia (third Friday in the US) and one of my favourite parts of each month. This year, the last Thursday of the month and indeed the year, wont be options expiry – it will be the Boxing Day Test, live from the MCG.
I can see the day now – a leisurely breakfast and then a short stroll along the beach with the family and dogs, a swim and then home for the cricket a cold beer and some seafood. Other than watching some good cricket and relaxing, one of the biggest pleasures that I will enjoy from this, is that my covered call income will have paid for everything, without me literally having to lift a finger. Register now for your opportunity to enjoy a “complimentary” Christmas holiday!.