Is it time to reconsider the banks?
The Australian share market fell to 5,721 points this week, its lowest since October 2017.
However, it did bounce back up by more than 3 per cent overall, with the stand out sectors being Healthcare which was up over 5 per cent and Financials up around 4 per cent.
CBA and Macquarie were also up around 5 per cent, NAB around 3 per cent and ANZ around 4 per cent after reporting 3rd quarter earnings this week. Westpac is due to report earnings on Monday.
The key points to highlight in these reports is the impact on the banks’ bottom lines from the Royal Commission, as well as the damage resulting from redemption costs to pay back those that were wrongly charged in the fees for no service scandal.
Overall the third quarter earnings report from the banks was as expected as profits were down across the board. This can be attributed to restructuring costs as they simplify their business model in reaction to the Royal Commission report.
So, is it time to invest in the banks? They have been under the microscope for quite a while now, with the heat of the report from the Royal Commission hopefully being the last piece in the puzzle. I think the worst is behind the banks, so moving forward I believe they are attractive over the medium to longer term.
One thing to keep in mind is to wait for confirmation that the banks are rising rather than trade on speculation. The streets are littered with investors attempting to pick the bottom, with AMP being the latest to strip investors of their hard earned money as it fell off a cliff on news of the sale of its long-standing life insurance division.
Picking bottoms on stocks is a dangerous game if you don’t have the knowledge because more often than not the stock will fall further. Given this, investors are far better off waiting for the stock to rise over weeks and months rather than days before investing.
So what do we expect in the market?
After recovering around 200 points this week, we may have seen the bottom of the recent fall. That said, this is unconfirmed given the rise has so far only been a few days. To confirm the low, we need to see the market fall slightly to test the low of 5,721 points set on 26 October 2018.
If the market stays above this level over the coming weeks and continues to rise, then we may be in for a good Christmas. Right now, the market has time on its side to rise back up to the highs in August, and it very well may do so. Before you get too excited, it pays to exercise caution right now and be selective with your investments.
Good luck and good trading!
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online at www.wealthwithin.com.au