So lets consider the macro environment. Interest rates are going up in the US and markets are cautious. Our dollar may be under pressure as a result of rising US rates and unemployment in the US remains low and business conditions strong. China is still growing but they are not booming and therefore our resources are may remain under pressure, and this too is a contributor to a lower dollar. Oil prices too remain subdued sitting at multi-year lows so the cost of business for many US companies remains cheap and the consumers will have more money in their pockets unless OPEC gets their act together and curbs supply.
Whilst global growth rates remain subdued and the outlook for the share market is forecast to run at parallels, the share market will be a stock pickers market in 2016. Banks still need to raise capital so it may be worth taking up potential further offers as interest rates are low and housing remains strong. Banks have an uncanny reputation to hang onto their profits despite short term regulatory headwinds. Health care has been a bellweather for growth but an impending government review on bulk billing has rained on the likes of Primary and Sonic but keep an eye on value in this sector. Ramsay (no. 1) remains a key holding for me and I've been topping up on the dips.
Consumer goods and services have been strong in our low interest rate environment and I'd urge some caution in the face of the Dick Smith failure but some common sense can be applied here. Interest rates are low, unemployment is low and house prices have been moving north (in most populous states) so consumers are active. Just watch for the switch in rates bias that can rain on this parade (possibly end of 2016) but there's little sign of that yet (read the free downloadable Westpac weekly economic report from their website). Every builder, architect and renovation related business I know is absolutely flat out and that should flow through to building and renovation-related businesses such as JB Hi Fi, Breville, Kresta, James Hardie and GWA. So too AP Eagers may work as a holding as more people upgrade the family sled and motor vehicle sales touch records. A word of caution though, these stocks can be fickle, must be watched very closely and are not in my top 10 despite strong results.
I'll be watching less of the old stalwarts (although I like the first three) such as CBA (no. 2), NAB (no. 3), Telstra (no. 4), Woolworths and Wesfarmers and more of other large cap stocks in the form of Seek (no. 5), Crown (no. 6) and REA Group (no. 7). Woolworths is a sell in my books. Never lose sight of dividends and the banks again remain strong contenders for income and CBA is my favourite and Macquarie (no. 8) appears a reasonable prospect to me with the possibility of greater corporate activity and their expansion of recurring revenue streams, as does Challenger (No. 9). Just be cautious of dividend traps such as BHP (no. 10) although it has looks like good value at the moment and we'll be watching their results very closely this year as it remains in portfolios coupled with Woodside as the only resources contenders for our very conservative clients.