Portfolio NAV for Q3 climbs 2.7% as USD/AUD strengthens
As another quarter comes to a close, the market rebounded modestly during September. While at the start of the month the key indices were sitting in negative territory for third-quarter performance, the Dow Jones and S&P 500 were able to reverse course. It means the S&P 500 has posted its best (comparable) result since 1997.
Meanwhile, the NASDAQ, which has been the best performing index year-to-date, lagged across both September and the quarter. It was around this time last year where market sentiment took a sharp turn based on interest rates and trade concerns.
Like much of the year, the third quarter was defined by two key themes – the ongoing US-China trade war, and the interest rate outlook.
Discussions between the US and China have swung like a pendulum. From optimism, to fresh tariffs, back to optimism with an October meeting scheduled. But hold the press, US investors may now be limited from investing in Chinese companies. With President Trump also facing a large political fight on his hands amidst potential impeachment, his willingness to win these negotiations we can only presume is emboldened.
As far as interest rates, two cuts were passed during the quarter – first in July, then in September. Nonetheless, from the rhetoric coming out of the Fed Reserve, it is clear there is a split to go down the path of a full-blown easing cycle.
During August the inverted yield curve emerged as a new concern – viewed by some as a possible recession indicator – however this skittishness has since faded. Like we alluded to previously, with rate cuts still in hand, this time does feel ‘different’.
Global economic growth is a watch-point, as a slowdown in China and Europe could impact the US. News of a comprehensive stimulus package from the ECB is very welcoming, especially as US factory activity, hiring, consumer sentiment and business investment all slowed in recent results. Brexit lies ahead too, although we think another delay is likely.
“It is clear there is still a split to go down the path of a full-blown easing cycle”
Another set of quarterlies conclude
Oracle (ORCL) produced an earnings beat, while also pointing to an encouraging outlook. In fact, 2020 revenue is expected to grow faster than previous years, and earnings per share could increase by double-digit growth. It’s certainly an encouraging set of results, so it is little wonder the market favoured it with a 5.7% increase across September.
Meanwhile, although Adobe was able to top earnings forecasts, the company’s outlook fell flat. We were disappointed to hear that revenue from the digital media segment is expected to grow at a slower rate than the last three quarters, since this has been one of the key catalysts in the company’s strong rise. Shares fell 2.9% during September, although it is still a stock we are comfortable to hold on account of the broader cloud theme at play.
Performing much better was one of our key portfolio stocks, Nike (NKE). On the back of new products and investments helping drive sales in America and China, shares have reached a new all-time high after rising 11.2% last month. Our conviction in the stock is still strong at this stage, with trade issues seemingly having no effect on the company’s growth prospects.