Date published - 2024-02-06
(This is a very shortened version highlighting excerpts of our full report which is available for our paid subscribers).
Last week, the US stock market continued to push to record highs. For the week, the S&P 500 and Dow both increased by 1.4%, while the Nasdaq Composite rose by 1.1%, marking the fourth consecutive week of gains.
Tech stocks led the charge, with Meta's announcement of its first-ever quarterly dividend and a significant earnings beat propelling its shares up over 20%, while Amazon's earnings beat resulted in an 8% stock increase. Apple (-3.4% for the week) fell due to disappointing sales in China. In the energy sector, ExxonMobil fell 1% for the week after mixed results, while Chevron's stock rose 2% after increasing its dividend. Microsoft's shares rose 1.8% for the week after the company reported better-than-expected Q2 earnings, driven by strong Azure cloud business and new AI features. However, Alphabet bucked the generally strong trend among tech stocks, falling 6.7% for the week after its advertising sales growth failed to meet expectations. The banking sector faced challenges, particularly New York Community Bancorp (NYCB) which fell 42% last week after it reported a surprising Q4 loss amid preparations for stricter capital requirements following acquisitions.
In the oil markets, Saudi Arabia's decision for state-owned Aramco to maintain its oil production capacity at 12 million barrels per day, instead of expanding to 13 million barrels per day by 2027, marked a significant policy shift. This failed to support crude prices which fell sharply into the end of the week. Despite initial hopes for a ceasefire agreement between Israel and Hamas to alleviate regional supply disruptions, uncertainty remains. Reports after the close on Friday indicate that the US has escalated attacks against Iran-backed proxies in the Middle East and may result in some upward pressure on oil prices as we start trade this week. Gold prices ended the week higher despite a stronger dollar and rising Treasury yields.
This week's trade ideas look at a South African resources stock and a global turnaround story
Feature Slide - The Magnificent Seven
Replacing the ‘FAANG‘ acronym, The "Magnificent Seven" stocks refer to a group of leading tech-oriented companies that have significantly influenced the market dynamics and investor sentiment, particularly in the United States. These stocks have recently been responsible for almost all gains on major US indices as the rest of the market trails behind.
We are currently in the middle of the Q4 earnings season but most of these companies have reported strong numbers. The risk with lofty expectations is that despite strong performance and growth, some have fallen short of consensus estimates. Always be sensitive to what is priced in vs. what can be delivered. Many are close to all time highs. Tesla has been a notable laggard. NVIDIA is the last of the companies to report with its earnings due in about 2 weeks and is currently setting the market pace.
Some SA company highlights last week: (details in full report)
This week we look at:
Hyprop +3.9% for the week, Hudaco +5.2% for the week, Vodacom -5.9% for the week and Impala Platinum-5.9% for the week. Also, Global media giant, Canal+ announced a takeover offer for MultiChoice at R105 per share, resulting in a 12% increase in MultiChoice's share price for the week. However, challenges related to foreign ownership limits in the South African broadcasting industry may complicate the deal. Multichoice has just indicated that they feel the offer is too low.
Economic:
Last week the focus was on the US Federal Reserve’s FOMC decision and US jobs numbers as a litmus test for the economic cycle as well as the path of monetary policy going forward. The Fed maintained the Fed funds rate at its 23-year high of 5.25%-5.5%, in line with expectations but issued guidance that pushed the timing and pace of cuts out. US jobs numbers posted a blockbuster number and we unpack what the underlying picture looks like.
We also saw the release of the International Monetary Fund’s (IMF) World Economic Outlook. The IMF anticipates a "soft landing" for global economic growth, signaling a positive outlook for the global economy. More detail on the updated numbers in the full report. We also look at EU GDP numbers from several countries, German inflation and the BOE. Domestically, the focus was on trade data.
South Africa achieved a trade surplus of 14.06 billion ZAR in December, despite a decline in exports by 11.5% and a less significant drop in imports by 9%. However, South Africa's annual trade surplus for 2023 was lower than the previous year due to increased imports.
For the week ahead:
SA: Manufacturing production, State of the Nation
US: Trade, Geopolitics, Fed speakers, Earnings season
Europe: German trade
Global: Chinese inflation
Our Market's and Risk view:
Our risk indicators have been oscillating between 'Extreme Greed' and 'Greed' territory for several weeks now. The VIX index has been flat for the week but bond volatility escalated following the Fed meeeting last week. We remain cautiously long but the rally's breadth is quite thin and is being propelled by a handful of stocks. We maintain that risk needs to be managed actively at current levels.
(Clients can contact us for more detail on our overall risk matrix).
Our full report unpacks all of this in more detail as well as their implications for the markets.
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