Market scorecard
The US stock market selloff deepened on Friday after a weak jobs report heightened concerns that the Federal Reserve's decision to keep interest rates at a two-decade high could lead to a more significant economic slowdown. Those concerns sparked turmoil in global trading, leading to a sharp increase in volatility and prompting investors to retreat from riskier assets.
The S&P 500 saw its worst reaction to jobs data in almost two years. The Nasdaq is down over 10% from its peak, passing the threshold that meets the definition of a correction.
In company-specific news, Nintendo's (TYO:7974) operating profit dropped a steeper-than-anticipated 71%, as consumers delayed purchases in anticipation of the upcoming launch of a new flagship video game console to succeed the Switch. In more positive news, Cloudflare (NYSE:NET) jumped 6.8% on a strong beat-and-raise earnings announcement.
On Friday, the JSE All-share closed down 1.62%, the S&P 500 lost 1.84%, and the Nasdaq was 2.43% lower. Sad :(
Bright's banter
Apple (NASDAQ:AAPL) reported earnings on Thursday that surpassed Wall Street forecasts with a 5% revenue increase. Despite the strong performance, Apple shares remained flat in after-hours trading and only closed 0.7% higher on Friday.
The company made $85.78 billion in revenue for the quarter, up 5% year-on-year, beating expectations. Net income reached $21.45 billion, up from $19.88 billion the previous year. The iPhone remains Apple's top revenue generator, accounting for roughly 46% of total sales, despite a 1% decline year-over-year to $39.3 billion.
CEO Tim Cook highlighted that, on a constant currency basis, iPhone revenue actually grew year-over-year. He also mentioned that while the new Apple Intelligence (AI) service won't impact sales until later this year, the company has increased spending to prepare for its launch.
The iPad division was a standout, with sales soaring nearly 24% year-over-year to $7.16 billion, driven by a new product release. Mac sales rose by a more modest 2%, and the Wearables, Home, and Accessories category declined by 2%.
The Services segment, which includes revenue from Google (NASDAQ:GOOGL), cloud storage subscriptions, and content services like Apple TV+, grew 14% to a record $24.21 billion.
Despite a second consecutive quarter of declining iPhone revenue and a 6% drop in Greater China sales, we remain hopeful that Apple's upcoming AI features will drive future growth. The company's new AI tools are set to be a key factor in encouraging iPhone upgrades when they launch later this year.
Looking ahead, Apple CFO Luca Maestri noted that the company anticipates similar revenue growth in the current quarter, with Services expected to grow at around 14%, consistent with the last three quarters. Operating expenses are projected to stabilise, with gross margins ranging from 45.5% to 46.5%.
Almost all Vestact clients own Apple shares. We aim to keep it that way.
One thing, from Paul
In general, once you sell a company's shares, you should not look back. Don't check to see where its shares are trading now, just move on.
A few weeks ago I broke that rule, because I saw this headline: JP Morgan reported the highest quarterly profit of all banks in all of American history. The announcement was made by their highly-respected CEO Jamie Dimon.
JP Morgan is the apex US bank. We bought them for most clients in 2017 at around $100 a share and then sold out in 2021 at around $150 per share.
The main reason for exiting was that they suffered from big swings in earnings and share price performance, like all banks, in line with economic cycles. The other reason was that despite making very good profits, they traded on low valuations, due to very restrictive regulations introduced after the financial crisis of 2008-09. We got tired of waiting to see how new banking technology would improve their margins.
JP Morgan is doing fine but despite making huge profits last quarter, its share price has been falling recently because they missed analyst expectations of net interest income (NII). With interest rates set to fall in the rest of 2024, big banks are expected to feel the squeeze.
JP Morgan shares (NYSE:JPM) are currently trading at just below $200, at that level, they have only performed in line with the S&P 500 since we sold.
Byron's beats
Google Cloud has been growing steadily and is finally contributing some solid operating income. Take a look at the picture below. Up until the first quarter of 2023, the business was loss-making. In the latest quarter, it raked in $1.2 billion.
According to the company, over 2 million developers are using the Google Cloud Platform, with specific focus on the suite of AI solutions. You will also notice from that image that Google Workspace is included in the cloud numbers. That includes Gmail, Google Meet, Google Chat, and Google Drive.
The online working environment is dominated by Microsoft (NASDAQ:MSFT) Office and we often forget about Google Workspace. Having said that, I use the products on a regular basis and always find the experience seamless.
Signing off
Asian markets dropped again this morning as the selloff intensified. Equity benchmarks slid in Hong Kong, India, Japan, South Korea, Taiwan, and mainland China. Japanese markets are set for their worst three-day drop since the 2011 Fukushima nuclear meltdown. There are headless chickens everywhere.
In local company news, the competition watchdog has approved the R450 million sale of Nampak's (JO:NPKJ) liquid cartons business to a private equity crowd. You might be wondering what's left of the Nampak business considering that they have sold off 5 of its business units worth R2.1 billion, including the Tanzanian and Nigerian arms, as it tries to pay down its crippling debt.
US equity futures are in the red pre-market suggesting another tough day. The Rand is trading at around R18.44 to the US Dollar.
Never fear, and keep calm. Markets don't go up every day. Everything will be fine.