The best and worst performers on the ASX this week

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Due to the COVID pandemic, Australian banks have dramatically increased their liquid reserves in order to handle any issue that may arise, such as an increase in loan defaults.

In the seven years prior to 2020, the banks liquid reserves to asset ratio has typically been around 1% although this increased to approximately 4.25% in 2020. While Australia went into a brief recession in 2020, the impact on the economy was not as bad as expected, and consequently, Australian banks have been holding significant amounts of cash for quite some time.

Low interest rates have meant banks have been able to access money in the wholesale market at extremely affordable rates, which has resulted in an increase in lending with statistics from the ABS showing that the value of new loan commitments has almost doubled in the last year.

reporting season in the time of lockdowns

In addition, we are now seeing banks initiate share buybacks and other capital management strategies. On Wednesday, Commonwealth Bank announced an off-market share buyback of up to 6 billion CBA shares.

So, if you are a shareholder, a buyback is good news given that they generally underpin the share price while the buyback is being conducted and into the future, as there are fewer shares traded on the exchange.

If you don't currently hold CBA shares, then there is limited upside to buying the stock in order to participate as buyback can also cause the stock price to stagnate a little. CBA also delivered more good news this week with the announcement of a $2 dividend, which is back to pre-COVID levels and up 30% on the March 2021 dividend payment.

Overall, I believe the outlook for CBA moving forward into 2022 is good with the broader Finance sector likely to do well next year.

The best and worst performing sectors this week

The best performing sectors include Financials and Communication Services, which are both up more than 2% followed by Consumer Staples up more than 1%. The worst performing sectors include Industrials and Healthcare, which are both down more than 1% followed by Information Technology down just under 1%.

The best performers in the ASX/S&P top 100 stocks include QBE up more than 11% after announcing it had returned to profit followed by IAG up more than 9% and Suncorp Group up more than 7%. The worst-performing stocks include RIO down more than 7% followed by Northern Star Resources and Fisher & Paykel Healthcare, as both are down more than 6%.

What's next for the Australian sharemarket

Reporting season is underway in Australia and with the results being positive for some of our largest companies, it seems we may now finally see the Australian market trade higher in a sustained move.

Telstra and insurance companies, as well as the long-suffering AMP all reported positive results with their respective share prices rising, driving the market up.

The US market is just finishing its reporting season with more than 80% of companies announcing improved results and I suspect we will follow suit.

We need to be mindful that the results being delivered are for the previous financial year and as we are only one month into the new financial year and over half of our population in lockdown, we are likely to see a different story, at least in the next one or two quarters.

Right now the market is bullish, and I believe it will continue to push towards 8000 points and beyond. That said, we are due for a high in the next month with the market likely to fall into its next low in the last quarter of this year.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.