The S&P 500 was up by 0.12points or 0.01%on Wednesday to 1970.07.  The S&P 500 and Nasdaq ended higher as the Federal Reserve gave a rosier assessment of the U.S. economy while reaffirming that it is in no rush to raise interest rates. The fed as expected announced a further $10 billion reduction it its monthly asset purchase to $25 billion, and made no change to its expectation that policy would stay accommodative for a considerable time after the programme ended.

Among the stocks that declined were Genworth Financial on the news that it was reviewing whether enough funds had been set aside for claims and Public Services Enterprise group retreated among the utilities sector after earnings trailed estimates. Twitter shot up more than 20% as the world cup related demand helped the company double revenue. The GDP figures overshadowed a report on US labor market conditions from private payroll adviser ADP. This showed US companies creating 218,000 jobs in July less than the estimate of 230,000.




Twitter Daily Chart (Source – Thomson Reuters)


S&P ASX 200was up by 0.60%on Wednesday and closed at 5622.9 points. Australia’s biggest mortgage lender, Commonwealth Bank of Australia, led the index on Wednesday, up 1 per cent to a record-high $83.12. Westpac Banking Corporation added 0.3 per cent to $34.36, ANZ Banking Group gained 0.5 per cent to $33.86, and National Australia Bank rose 0.2 per cent to $35.18. QBE bounced 4.5 per cent to $11.04. Telstra Corporation rose 0.6 per cent to $5.49.

Gold futures have continued their losses after the Federal Reserve’s monetary policy statement turned out to be in line with investors’ expectations.  Iron ore was up 0.6 per cent at $US95.90 a tonne. Oil prices tumbled, with Brent leading the decline. Sonic healthcare has announced that its UK subsidiary has formed a partnership with University College London Foundation and Royal Free London foundation to form a partnership Health Services Laboratories. Among the top performers were ALS Limited and Mt. Gibson.





ALS Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 





Stock of the Day – AMP (AMP)

While stable earnings to assets under management margins in the context of broadly flat markets will be positive, the fee pressure and cost savings could be better than expected. Low cash rates and stable markets should bode well for positive flow momentum. The focus on turning around wealth protection alongside the re basing of margins should see no adverse surprises in life. Strong volumes and potential margin upside could see the Bank surprise with earnings. AMP provides the purest large scale play on Australian wealth scene.


AMP Financial Highlights (Source – Company Reports)

AMP is one our preferred wealth managers because of its vertically integrated business model high market shares, strong brand, large sticky customer base, low cost base and it having the largest financial planner network in Australia and New Zealand. Strong competitive advantages are associated with this stock. Improvement in the outlook to AMP’s wealth protection business increased assets under management or AUM, higher market values and improved investor confidence have boosted AMP’s share price.


AMP Operating Earnings (Source – Company Reports)

Assets under management growth is aided by AMP’s strong distribution network which compromises one of nation’s largest groups of financial advisers and platforms. The growing size and complexity of the superannuation system is a catalyst for increased demand for financial advice and wealth management services. However if investment markets stumble and investor sentiment deteriorates AMP’s 30% AUM in defensive assets such as fixed income and cash will provide some insulation.


AMP Daily Chart (Source – Thomson Reuters)
The key risk to AMP is a major pull back in equity markets and a collapse in the recovery in investor confidence. Weaker investor confidence manifests itself through elevated fund outflows from equity assets into lower margin cash and fixed interest investments. Sustained market weakness would result in lower net earnings  but at this stage the likelihood is low as global low interest rates remain at historical low levels. We believe the stock is expensive at its current price.
 

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