The Motley Fool

Foolish Preview: Flat start, and how to respond to the rate cut

US Markets were soft overnight, with the Dow Jones Industrial Average falling 0.1% to 13,268.6 and the S&P 500 down 0.25% to 1,402.3 points. Only the Nasdaq managed to close ahead, rising 0.3% to 3,059.9.

The overarching news last night seems to have been a weak private sector hiring report, which spooked investors hoping for a smoother and quicker return to growth, and European unemployment also weighed on sentiment, with Euro-zone unemployment hitting 10.9% – a record. Almost one in four Spaniards are out of work.

Largely as a result of US weakness, the ASX SPI futures are just positive, having risen less that 0.1% overnight, likely pointing to a pretty flat start for the S&P / ASX 200 (Index: ^AXJO) (ASX: XJO) and the All Ordinaries (Index: ^AORD) (ASX: XAO).

Westpac results

Westpac (ASX: WBC) has this morning joined the chorus of underwhelming bank results – announcing a 1% increase in cash profits. Westpac CEO Gail Kelly was quoted in the Australia Financial Review calling the result “sound” in a competitive banking environment.

I agree – which is why both ends of that sentence are important. Westpac did a reasonable, but not stellar, job of maximising earnings. However, Gail Kelly is right – the banking environment remains challenging. We’ve told you that before, but it bears repeating.

There will be little credit growth – personal, housing or business – in the foreseeable future. The likes of Westpac, National Australia Bank (ASX: NAB), Commonwealth Bank (ASX: CBA) and ANZ (ASX: ANZ) have lived a charmed life this past 20 years, but the music has stopped. You can’t invest by looking in the rear vision mirror, and bank shareholders really need to understand that the world has changed.

Corporate news

Meanwhile, the Sydney Morning Herald is reporting that James Packer is considering selling his stake in Foxtel, and speculating that News Corporation (ASX: NWS) may be the likely buyer.

Today will also see the High Court rule on the James Hardie (ASX: JHX) case that has put directors’ duties front and centre, with several directors defending a claim they authorised a misleading statement.

Brambles (ASX: BXB) shareholders will also be pleased to know the company believes it will meet profit guidance for the current year, despite weakness across Australia, the United States and Europe.

Responding to the rate cut

One important outcome from this week’s rates decision is that bank deposits continue to be less and less attractive for investors seeking income. We think that’s where shares can play an important, but often overlooked role.

To find out why, and see which shares we think fit the bill, look no further than “Secure Your Future with 3 Rock-Solid Dividend Stocks”. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

For more Foolish reading, check out these stories we published yesterday:

Scott Phillips is an investment analyst with The Motley Fool. You can follow him on Twitter @TMFGilla. Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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