Equity markets threaten to 'melt up' as Nasdaq enters bull market territory

No wonder I'm feeling better about my investments.

| More on:
A gold bear and bull face off on a share market chart

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

1) US inflation slowed from 9.1% in June to 8.5% in July, a print that was lower than expected.

Cue a big rally in US markets as investors looked ahead to a moderation of the Federal Reserve's interest rate rises as it attempts to get inflation back under control.

The Nasdaq 100 jumped 2.9%, simultaneously exiting bear market territory and entering a bull market, having risen 20% above its June lows. The index is still 19% below its November 2021 high.

No wonder I'm feeling better about my investments than I was just a few weeks ago. 

And there could be more gains ahead as hedge funds unwind shorts, funds which fled to cash rush to get back into the rising market, and retail investors buy the dip.

As Bloomberg puts it…

"Nobody saw it coming, and now everyone wants in. That's a nutshell synopsis of how an improbable equity market bounce is threatening to become a melt up."

2) The S&P/ASX 200 Index (ASX: XJO) has taken somewhat of a lead from Wall Street, although not to the same extent, up a somewhat modest 54 points to 7046 in lunchtime Thursday trade.

No melt up here, sadly, although that shouldn't be expected given the ASX 200 is dominated by huge banks and mining companies. 

3) Long-suffering Telstra (ASX: TLS) shareholders finally have something to cheer about… the first increase in the total Telstra dividend since 2015.

Outgoing CEO Andy Penn said the increased dividend "recognises the confidence of the Board following the success of our T22 strategy, the ambition in our T25 strategy of high-teens earnings per share (EPS) growth from FY21 – FY25, the strength of our balance sheet and the recognition by the Board of the importance of the dividend to shareholders."

Given the Telstra share price is largely flat over the past almost 20 years, any investment in the company has long been about the fully franked dividend. 

Despite Mr Penn's ambitions of turning Telstra into a growth company, it remains a large utility company operating mostly in two very competitive environments – mobile and broadband. From an investing perspective, utility companies are yield plays.

Based on the full year dividend of 16.5 cents, Telstra shares trade on a fully franked dividend yield of 4.1%. Not bad, but in this rising interest rate environment, not as attractive when compared to alternatives, including risk free term deposits. 

Valuation-wise, Telstra shares are off the charts, trading on 28 times earnings. They are anything but risk-free.

4) One dividend stock flying under the radar is one I own, GQG Partners (ASX: GQG), the boutique global investment manager headquartered in the United States.

In what has been a tough period for the sector – hurt by outflows and poor investment performance – funds under management have increased by 2.4% from the previous year. 

Floated in October last year at $2 per share, like most recent IPOs, the GQG share price has traded below its issue price.

Like all fund managers, GQG's results will largely be driven by its investment performance over the long term, and all strategies are ahead of their benchmarks over a five year period. 

Unlike many fund managers, most of GQG's revenues in the first half were derived from management fees, and not performance fees. As such, profits are far less volatile than typical fund managers like Magellan Financial Group (ASX: MFG) and Pinnacle Investment Management Ltd (ASX: PNI). I also own the latter.

Given GQG's relatively predictable results, if you extrapolate the roughly US$0.02 quarterly dividend across the full year, converted to Aussie dollars, GQG shares trade on a dividend yield of around 7.1%.

Not bad for a growing company trading on roughly 13 times profit. This $4.7 billion company looks to be flying under the radar of most income investors.

Motley Fool contributor Bruce Jackson has positions in GQG Partners Inc. and PINNACLE FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended PINNACLE FPO. The Motley Fool Australia has positions in and has recommended PINNACLE FPO and Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Share Market News

Broker gives its verdict on BHP shares

Let's see what Bell Potter is saying about the Big Australian.

Read more »

A man in his office leans back in his chair with his hands behind his head looking out his window at the city, sitting back and relaxed, confident in his ASX share investments for the long term.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

Woman holding gold bar and cheering.
Gold

Why Macquarie expects this surging ASX 200 gold stock could leap another 40%

Macquarie forecasts another year of strong outperformance from this fast-rising ASX 200 gold miner.

Read more »

A young woman looks at here phone as she strides out in an airport dragging her wheelie bag behind her and smiling widely.
Broker Notes

Macquarie tips 15% upside for this ASX 200 industrials stock

Is this transportation business preparing for take-off?

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another momentous session for ASX shares this Friday.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why BHP, Catalyst Metals, Mesoblast, and Pilbara Minerals shares are shooting higher

These shares are ending the week with a bang. But why?

Read more »

Disappointed man with his head on his hand looking at a falling share price his a laptop.
Share Fallers

Why 29Metals, Atlas Arteria, DroneShield, and Yancoal shares are falling today

Let's see why these shares are ending the week in the red.

Read more »