Date published -2023-08-01

(This is a very truncated version highlighting excerpt of our full report which is available for our paid subscribers)

Last week was mostly about the US Federal Reserve's hike and we discuss that in detail in the Economic section below. But it was equally busy on the earnings front both globally and domestically. South African markets notably outperformed global markets last week with only the Resources sector posting weekly losses. There were a lot of company announcements in that sector and platinum stocks among the hardest hit.

Anglo American Platinum (-2.8%) reported a 24% decline in revenue and a 71% decline in headline earnings as lower platinum group metal (PGM) basket prices and lower production hurt performance. Kumba Iron Ore (+10%) rallied strongly last week as the company ‘only’ reported a decline in headline earnings for the 6 months to June of -17%. Revenue was 11% lower, and the company continues to struggle with rail issues at Transnet. However, the outlook was upbeat on a rebound in Chinese demand. Shoprite (+5.8%) rallied strongly last week as the company posted surprisingly strong numbers in its 52-week update to July.

It was a very busy earnings week in the US in addition to the macroeconomic news. The markets were dominated by the NASDAQ last week (+2.1%) as 10% rallies in Alphabet (Google) and Meta drove the overall tech sector higher after strong results from those firms. This helped offset a decline from the likes of Microsoft (-1.6%). The S&P 500 (+0.8%) and Dow Jones Industrial average (+0.4%) both trailed behind. Exxon Mobil (+0.3%) bucked the generally upbeat earnings trend releasing mixed results as sales beat estimates but earnings missed. Overall, there was no sectoral winner in the US other than the communications services sector (with Google and Meta) which was interesting considering a generally positive risk backdrop from a macro perspective.

We are about halfway through US earnings season and while earnings have declined, results have generally beaten analyst estimates for both sales and earnings (analysts were more bearish). For the week ahead, we see results from Pfizer, Starbucks, Amazon, and Apple among the larger names reporting.

Our feature this week isn't just one chart, but several. We unpack 4 archived trade ideas, two which worked and two which didn't.

These highlight some of the importance of using stop losses as well as calibrating those stop losses well. Similarly, a disciplined approach to taking profit is a useful too. In aggregate, we continue to track our trade ideas as well as our weekly carousel and will continue to provide periodic updates on how the ideas are working. A majority of our trade ideas continue to remain open at present.

 

The US Federal Reserve hiked interest rates by 25 bps last week, taking the Fed funds rate to 5.5%, in line with consensus expectations. This takes policy rates beyond the pre-2008 peaks, to their highest level since 2001. This was the 11th hike in this cycle following a pause at the last meeting. The commentary from the Fed indicated that it remained data dependent but left the door open to a pause in the cycle with the market interpreting this as the likely peak. This led to some intraweek dollar strength although the dollar remains weak over the last several months. Importantly, on Friday, we had the release of US Personal Consumption Expenditure price index data. This is the Fed’s preferred inflation measure and we provide further detail in our full report.  Last week, we also had the European Central Bank (ECB) hike its interest rate by 25 bps to 4.25%. This is the 9th consecutive hike in the region, lagging the US by a few months.

The Purchasing Managers Index acts as a lead indicator to growth. Globally manufacturing PMI data has remained in contraction territory (below 50) for some time and flash estimates for July seem to confirm the picture.

Domestically, we had a decline in the leading business cycle indicator released by the South African Reserve Bank. This is the 4th consecutive month of decline.

For the week ahead, the key focus will likely remain on the US with jobs data out at the end of the week. Globally, we have Eurozone unemployment, inflation, retail sales and GDP data across the week. We will also be watching the Bank of England on Thursday with a 25 bps hike expected. Domestically, we are watching the trade balance for June which usually is important to the rand.

Our market carousel has 2 open long positions with both being in a partial profit take stance. We open a speculative long this week taking our open long positions to 3. We trimmed 1 short position which was in partial profit take, taking us from 2 short positions to 1. With 1 position closed and 1 opened, we still have a net 6 'No Position' stances. Our trade ideas this week include a speculative commodity stock play. We also highlight the use of the Coppock Curve in identifying a cyclical trend and long term market momentum. We use this to identify a stock to consider going long on a pullback. Lastly, we consider an 'in-sector' pair between 2 global real estate stocks.We highlight notable developments in our full report.

If you are not a subscriber, you are missing out on the key details and quality insights with actionable trade ideas weekly. Click below to sign up!

 

The full report is available to our Monthly and Annual Members.  To read the full report, please login or join us.