Delicate Retirement Balance, July Market Wrap, Inflation update and Poolside celebrations!
SB Pandemic Update
Events of recent weeks have seen Delta’s contagious power strike a brutal reality check on greater Sydney. Our friends, family and colleagues in Victoria have endured a much tougher pandemic than the rest of the country, however the outbreak of the more hostile Delta strain has changed all this for Sydney.
At times like this, our priority is the safety and well-being of those we work with and serve including our employees, our clients, and our professional partners. While maintaining focus on keeping everyone safe, we are continuing business operations with our team working securely from remote locations across the city. While life, for now, cannot be business as usual, at least our service to our clients can be maintained uninterrupted.
As I said to our team this week, when we are in the centre of the storm, it is always most difficult to see our path to the other side. What is equally true is that when an end comes, and it always does, the path out is often quicker than we expected on our hardest days. For now, we pull together and focus on looking out for each other. Keep safe.
July Market Wrap
Equity markets in the US and Australia will most likely end the month in the green. The S&P 500 climbing 2.5% and the All Ordinaries rising by 1.5% with one trading day remaining in July. The story was quite different mid-month as markets began pricing in the realisation that the covid battle is far from over given the threat imposed by the delta variant. With lockdowns enforced in Australia and lockdowns looming in the US, markets showed signs of trading in a similar way to earlier in the pandemic – airline, cruise and hotel stocks selling off while vaccine makers and work from home stocks rallied.
As July comes to an end, the 2nd quarter earnings season in the US is only halfway done. So far, the aggregate results for earnings and revenues are smashing records and expectations. Year over year earnings are up 86% which is the highest since Q4 2009, and revenues are up 21%. Expecting the economic recovery to continue, analysts have also increased estimates for Q3 and Q4.
The Delicate Retirement Balance
How to help adult children, while balancing one’s own retirement, is a common concern that families raise with us. Naturally increasing life expectancy and higher expectations of a comfortable retirement mean this is more of a balancing act than it once was.
What many retirees in their 60s, 70s and 80s tell us is that they want to help their children now and not wait to pass on wealth in their estate when their children may be in their 60s and retiring themselves. They want to make it that bit easier for their children who are in their 30s and 40s and trying to buy homes, pay down mortgages, raise their own children, and find that elusive balance between work and life.
Private Wealth Adviser Kirsten Lynn has written a detailed and thoughtful paper on this important topic, part of Stanford Brown’s broader focus on Intergenerational Wealth.
US Profit Season Update
This week sees the halfway mark on US Q2 earnings reporting season. Interestingly the results not only continue to beat forecasts by a significant margin, but estimates for the third and fourth quarter, and now even for 2022, continue to rise.
As has been the case for the last several quarters, analysts have considerably underestimated the extent of the economic recovery. Earnings are coming in on average at 18% above projections, well above the historic norms of 3% to 5% above expectations.
Those higher expectations are being reflected in the revenue numbers as well. Revenues are coming in 4.6% above expectations, four times the historical average of 1.1% above estimates. The much higher revenues also are supportive of the idea that the economic recovery is stronger than expected.
The dominant market narrative for months has been ‘Peak everything’ –the belief that US economic activity and earnings growth would peak in Q2. Nevertheless, signals of economic activity in the second half remain strong, and while earnings growth is not quickening as much from here, analysts are again revising upwards estimates for the ongoing recovery, including into 2022.
Despite the improving earnings some are concerned that the stratospheric valuation of the market may be the greatest near-term market risk. For example, even though Apple’s earnings report was incredible by every metric, the share price still ended down 1.7% after reporting. The question is just how much of the good news in this economic recovery has already been priced in?
Tourism Space Race
The commercial race to get tourists to space is heating up between Virgin Group founder Sir Richard Branson, former Amazon CEO Jeff Bezos, and mercurial entrepreneur extraordinaire Elon Musk.
On 11 July, Branson ascended 80km to reach the edge of space in his piloted Virgin Galactic VSS Unity spaceplane. Then on 20 July Bezos’ autonomous Blue Origin rocket travelled to reach higher altitudes (about 120km), coinciding with the anniversary of the Apollo 11 Moon landing. The launch was aimed to demonstrate his offering to very wealthy tourists, i.e., the opportunity to truly reach outer space.
Both tour packages will provide passengers with a brief ten-minute frolic in zero gravity and glimpses of Earth from space. Not to be outdone, Elon Musk’s SpaceX proposes to provide four to five days of orbital travel with its Crew Dragon capsule later in 2021.
While us common folk can only look on, the Billionaire point-scoring between Branson and Bezos cranked up a notch this month. Branson had brought forward the Virgin Galactic launch date to allow him to declare Virgin as first in the space tourism race. Not to be outdone, Bezos Blue Origin hit back with a pointed comparison of the two space experiences.
As remarkable as both these experiences would be, Musk’s SpaceX, plans to send paying civilians into space this year and to break humans free of Earth orbit altogether with a 2023 loop around the moon. We stand at the beginning of a new Space Age, and a new Space Race.
Hot & Cold Inflation
Last quarter, Australia’s consumer prices rose at the sharpest annual pace in almost 13 years as petrol jumped and government subsidies unwound, but a tamer measure for core inflation suggests the spike will be short-lived.
Wednesday’s data from the Australian Bureau of Statistics showed the headline consumer price index (CPI) climbed 0.8% in the June quarter, from the previous quarter, just exceeding market forecasts of a 0.7% rise. Petrol was the biggest contributing factor, followed by health care, fresh food, and motor vehicles, where strong demand and supply bottlenecks have driven prices up.
The CPI climbed a sharp 3.8% on a year ago, but mainly because the index had been unnaturally depressed last year by lockdown relief measures. The more benign underlying trend was evident in the RBA’s trimmed mean measure of inflation which rose just 0.5% in the quarter and 1.6% for the year.
Core inflation has run persistently short of the RBA’s 2-3% target band for over five years, and the bank itself fears it will not reach 2% until the middle of 2023 even with interest rates at record lows. The outlook has been further clouded by the spread of the Delta variant and extended Sydney lockdown. Restrictions are set to blow a hole in consumer spending and employment this quarter, puncturing what had been a remarkably rapid national recovery to this point.
The Stanford Brown Portal
We are very excited to promote our tailored Stanford Brown Personal Wealth App.
The portal allows you to link up your finances from bank accounts and property to superannuation and more. It will keep you up to date with live data and help you manage, track, and store your entire financial world.
It also has a built-in digital signing tool for fast and easy sign offs, allowing you to use the time you would have spent printing and signing off a form to sit back and feel good that you’re taking small steps to help limit unnecessary paper waste.
We are rolling the portal out to clients in stages over the coming months. Should you want to understand more please speak with your adviser today.
Global Vaccine Update – Australia’s Delta Reality
Unfortunately, Australia has once again slipped back into COVID high alert with the spread of the much-feared Delta variant across Sydney and beyond.
Regrettably, outbreaks of this nature are inevitable and further increase focus on the lack-lustre vaccine rollout across Australia. For those of you interested in keeping track of the global vaccine roll-out, we again share the Financial Times rolling tracker.
It has been a challenging build-up to the 32nd Summer Olympic Games in Tokyo. For a start, the games themselves were one of the many sporting casualties of 2020. Then even as they approached, they were dogged by question marks over international travel, spiking virus levels in Tokyo and unprecedented sponsorship disassociation.
Now the games are finally with us, what they do bring is a welcome distraction, wonderful sporting heroics and a healthy dollop of Aussie pride.
Week one of the games is always a big one for Australia with a focus on the water across swimming and rowing. This year has been no different with standout performances in the pool from Ariarne Titmus, Kaylee McKeown and the women’s 4x100m freestyle relay. Across town in the rowing, both the men and women’s fours brought home the gold.
Most often its those small magical moments that linger in our memories long after the games are done. We will never forget Eric Moussambani Malonga, or I should say “Eric the Eel”, for his heroic efforts in 2000.
In a moment that has seen her shoot to fame across social media and international mainstream media alike, Kaylee McKeown accidentally dropped the F-bomb on live TV after winning gold in the 100m backstroke. In a post-race interview after being asked what she wished to say to family back home, she replied “F— yeah! I mean, woo!” before quickly covering her mouth as she realised what she had done.
I think even the most strait-laced amongst us would have to crack a giant smile on witnessing the moment of genuine unbridled joy from the 20-year-old. Enjoy your well-earned celebrations, Kaylee.
Keep safe and have a wonderful weekend.