After the market fall: what’s the deal with banks?

By Dale Gillham. Published at Oct 22, 2018, in Features

Known as one of the most volatile months in the stock market calendar, many investors think of October with trepidation. Certainly, ‘Terrible October’ has lived up to its reputation. Around 6.6 per cent was wiped from the Australian exchange this month when it traded to 5,909.7 points last Monday.

Most of the fall occurred in one week, wiping out the euphoric rise that was recorded during reporting season on US and Australian stock markets in the second half of 2018.

The sell-off in Australian banks helped to push the market lower, with falls of 7 to 9 per cent. The Interim Report of the Royal Commission appears to indicate that the worst has past, although, the impact on the banks bottom line continues to be felt.

Banks remain vulnerable to short-term downside risk, therefore I encourage buyers to use a trend line to determine when they should be investing.

Investors have lost confidence in banks, as buying and holding these stocks for dividends has actually cost investors a sizeable portion of their capital and has placed a big drag on portfolio returns this year.

For new buyers, bank yields are between 6.4 and 7.7 per cent.

Other sectors that were sold off heavily to a low last Monday include Consumer staples (XSJ), down 5.6 per cent; Health Care (XHJ) dropped 8 per cent; Utilities (XUJ) was 5 per cent lower and Industrials (XNJ) lost 10 per cent.

The sector that fell the least was Materials (XMJ), down 4.2 per cent.

Wesfarmers dropped around 6 per cent in the carnage. The pending shareholding vote for the demerger of Coles didn’t support the share price. Other big losers were Bellamy’s Australia Ltd (BAL, down 25.5 per cent, Blackmores Ltd (BKL) and Costa Group Holdings Ltd (CGC) were down around 12 per cent.

So what do we expect in the market?

The Australian share market bounced off October’s low of 5,909.7 points on Monday to achieve a high of 6,048.8 points.

Following a strong session on the US market on Monday night, the All Ordinaries Index (XAO) managed to record the best trading day since 15 June.

It’s been an interesting few months for the Australian market, with a fall of 8.8 per cent from the high of 6,481.3 points to the low on Monday of 5,909.7 points.

Dale Gillham, Chief Analyst at Wealth Within and author of Accelerate Your Wealth

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