banks lead australian stocks to solid gains 1581102015

Australian stocks surged higher on Wednesday, led by strong gains in the finance sector, particularly the big four banks. Investors shrugged off the possibility of any adverse fallout from the conclusion of the US Fed’s policy setting meeting, as well as the increasingly likely exit of Greece from the Eurozone, preferring instead to focus on the value offered by Australian stocks after their correction in recent weeks.

"In looking at banks, I would say there is a good chance that five years from now, we will have bought one or more positions in Australian banks," legendary investor Warren Buffett said in a telephonic interview Wednesday, according to The Sydney Morning Herald.

Indices and sectors

The benchmark S&P/ASX 200 rose 59.6 points, or 1.1 per cent, and closed at 5,595.4, while the broader All Ordinaries index was up 55.1 points, or 1.0 per cent, at 5,590.3.

The sectors that closed with gains included financials (+1.58 per cent), energy (+1.55 per cent), telecommunications services (+1.39 per cent), utilities (0.96 per cent) and real estate investment trusts (+0.92 per cent). The only losing sector was healthcare (-0.11 per cent).

Stocks

The big banks spearheaded Wednesday’s rally. Commonwealth Bank of Australia (ASX:CBA) shot up 2.28 per cent to AU$84.26, Westpac Banking Corp (ASX:WBC) jumped 1.86 per cent to AU$32.90, Australia and New Zealand Banking Group (ASX:ANZ) was up 2.14 per cent to AU$32.86 and National Australia Bank Ltd. (ASX:NAB) rose 1.77 per cent to AU$33.37.

The energy sector was a sea of green with almost every stock ending higher. Woodside Petroleum Limited (ASX:WPL) gained 0.71 per cent to AU$35.66, Origin Energy Ltd (ASX:ORG) shot up 2.44 per cent to AU$13.03, Oil Search Limited (ASX:OSH) gained 3.02 per cent to AU$7.51 and Santos Ltd (ASX:STO) was up 2.13 per cent to AU$8.16.

Barring Fortescue Metals Group Limited (ASX:FMG), which slumped 4.31 per cent to AU$2.22, major mining stocks closed higher. BHP Billiton Limited (ASX:BHP) rose 1.5 per cent to AU$28.17 and Rio Tinto Limited (ASX:RIO) was up 0.21 per cent to AU$56.03.

In telecommunications services, Telstra Corporation Ltd (ASX:TLS) shot higher by 1.49 per cent to AU$6.12, TPG Telecom Ltd (ASX:TPM) was up 1.17 per cent to AU$8.68, M2 Group Ltd (ASX:MTU) surged 2.35 per cent to AU$10.89 and iiNet Limited (ASX:IIN) was up 0.21 per cent to AU$9.65.

Amongst retailers, which closed mixed, Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, gained marginally by 0.19 per cent to close at AU$41.40, Woolworths Limited (ASX:WOW) fell 0.15 per cent to AU$26.80, Caltex Australia Limited (ASX:CTX) rose 1.36 per cent to AU$31.25 and Myer Holdings Ltd (ASX:MYR) lost 0.39 per cent to AU$1.29. Woolworths was unable to sustain its early gains on reports of chief executive Grant O’Brien leaving the company and a proposal to cut 1200 jobs.

Economic news, currency and market outlook

A new study by the BankWest Curtin Economics Centre reveals that Australian households are now carrying three times as much debt compared to what they did 25 years ago, reports ABC. While in 1990 average household debt was less than six months of annual income, it has now tripled to 18 months of annual income – a serious matter given the uncertainty around jobs and house prices.

US Federal Reserve officials indicated Wednesday that the US economy was recovering from the winter setback and is expected to grow between 1.8 per cent and 2 per cent this year. It may therefore be strong enough to weather an interest-rate hike by the end of 2015. Though the Fed elected to maintain interest rates on hold for now, it is likely to raise rates at least once or twice at its four remaining policy meetings in 2015, according to The Sydney Morning Herald.

On Wall Street, the Dow Jones Industrial Average rose 30.66 points, or 0.17 percent, to 17,935.14, the S&P 500 gained 4.11 points, or 0.2 percent, to 2,100.4 and the Nasdaq Composite added 9.33 points, or 0.18 percent, to 5,064.88.

Post-Fed meeting, the Australian dollar is trading higher following weakness in the US dollar as interest rates in the US remained on hold. According to the Business Spectator, at 07:40 this morning (AEST) the Aussie was trading at 77.48 US cents, up from 77.15 US cents on Tuesday.

The Australian stock market is likely to open flat today given that at 6.55am (AEST) this morning the June ASX SPI200 Index (AP) Futures was down by 4 points at 5,581.