The market is focused on central bankers this week but next week could really rattle the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) as two key events could knock a number of widely-held large cap stocks. We won’t get much chance to catch our breath with the more hawkish than expected US Federal Reserve and the decision by the European Central Bank to cut back on bond purchases this week. One of the two highly anticipated events for next week is Telstra Corporation Ltd’s (ASX: TLS) investor day on Wednesday, which is likely to determine if the stock slumps to fresh multi-year lows…
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The market is focused on central bankers this week but next week could really rattle the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) as two key events could knock a number of widely-held large cap stocks.
We won’t get much chance to catch our breath with the more hawkish than expected US Federal Reserve and the decision by the European Central Bank to cut back on bond purchases this week.
One of the two highly anticipated events for next week is Telstra Corporation Ltd’s (ASX: TLS) investor day on Wednesday, which is likely to determine if the stock slumps to fresh multi-year lows after its share price crashed 37% over the past year.
This makes the stock the worst blue-chip performer on the ASX with QBE Insurance Group Ltd (ASX: QBE) not far behind with a 29% fall from grace.
Investors are anticipating a dividend cut from Telstra with Citigroup predicting the 22 cents a year distribution will be trimmed to 16 cents a share.
Ironically, the stock could enjoy a relief rally on the news as I think this is already in the price given that the stock would still yield a very respectable 5.8%, which gets boosted to a little over 8% once franking is added.
If this news is coupled with a much bigger than expected cost cutting drive to lower its operating costs, the stock could pop!
Another catalyst could come in the form of commentary from management about a possible spin-off of part of its business that would split Telstra into two – an infrastructure business and a sales business. But I don’t think we will get this, at least not yet.
The downside risk is a big earnings downgrade as its chief executive Andy Penn re-bases earnings. I think the market can accept a modest downgrade in earnings expectations but anything too significant will send a shock through the system and create greater doubts about the sustainability of its dividend – even if that was cut.
I recently bought shares in Telstra and I’d admit it’s more about rolling the dice than on fundamentals. What is said at the Investor Day will determine if I cut and run.
The other key event kicks off on the same day when Telstra fronts investors. The Organization of the Petroleum Exporting Countries (OPEC) meets in Vienna to discuss increasing supply of crude.
The decision will determine how our large cap oil and gas stocks perform with the share prices of Woodside Petroleum Limited (ASX: WPL), Origin Energy Ltd (ASX: ORG) and Oil Search Limited (ASX: OSH) effectively at the mercy of the cartel.
Russia is already opening its spigot, a sign that it is willing to break ranks, while the world’s largest oil producer Saudi Arabia has also indicated its willingness to increase production quotas.
Other oil producing nations like Iran are steadfastly opposing the move, but I think Russia (which isn’t a member of OPEC but a collaborator) and Saudi Arabia have the upper hand.
But nothing is a given, so hang on to your hats Fools as the ride is going to get bumpy!
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Motley Fool contributor Brendon Lau bravely owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.