Wall Street drops as AI worries pummel chipmakers
Market Scorecard
Yesterday, US markets gyrated following the Fed's very hawkish tone about future interest rate hikes. Stocks were up earlier in the day, then dropped shortly after the Fed announced a 75 basis point interest rate hike. Then they rose again, only to fall away in the last hour of trading. Sadly, the S&P 500 is now back at 20% below the record high we saw in January.
Fed chief Jerome Powell vowed to crush inflation and said his committee was "strongly resolved" to bring it down to the 2% goal, adding that "we will keep at it until the job is done." The phrase invoked the title of a memoir by former Fed chief Paul Volcker's called "Keeping at It."
In company news, General Mills (NYSE:GIS) rose 5.7% as the consumer foods company beat expectations on quarterly profit and raised its full-year sales forecast. Clearly, people still need to eat. Elsewhere, the German government announced plans to nationalise electric utility Uniper. Shareholders seemed glum, as its shares plunged by 25% on the news.
After a confusing session, the JSE All-share was down 0.59%, the S&P 500 fell 1.71%, and the Nasdaq slumped by 1.79%.
One Thing, From Paul
We are lucky to live when we do, because life was much worse for generations past. Max Roser of Our World In Data recently noted that up until the year 1900, about half of all children died before reaching the age of 15.
Can you imagine the heartache that parents went through? At the conclusion of the Second World War, global youth mortality was still 27%. By 2017 it had fallen to 4.6%. In rich countries, it's now close to zero percent.
Nathan Baschez is a writer focused on strategy, tech, product, and media. He made this interesting point in a recent post: "You sit on top of an incomprehensibly large mountain of human knowledge and labour. Think of all the work that went into the chair you're sitting in, the clothes on your body, the screen you are reading this on."
I suppose that the only thing that would be better than living now, would be to live 100 years in the future. Those people will look back at us, and wonder how we managed, in such primitive times.
Byron's Beats
Last year Illumina (NASDAQ:ILMN) bought the cancer-screening company Grail for $6 billion. The deal was heavily criticised because that's a lot of money to spend for a company that does not make a profit yet.
Yesterday Reuters reported good news for the cancer detection test maker. Grail has signed a deal with life insurer John Hancock. They will roll out a preventative scanning test which will detect 50 types of cancers before any symptoms appear. As you can imagine, this is a very good move for a life insurer.
The test costs $949 but John Hancock said they will subsidise the product by 50% to 100% depending on the risk profile of the client. They are the first large life insurer to embrace Grail's Galleri test, let's hope we see more insurers hop on board.
Michael's Musings
On Tuesday Nvidia (NASDAQ:NVDA) launched a new set of GPU chips which will be four times faster than their current range. Nvidia's new chip architecture is named after the 19th-century English mathematician Ada Lovelace, generally considered to be the world's first computer programmer.
Due to slowing demand for GPUs, this launch was delayed slightly to allow for inventory distribution channels to work through existing stock. Nvidia is confident that there's enough demand for the new Lovelace models, so they have been launched with a higher price tag than previous models. An advantage of having the best brand in the industry is that Nvidia can be less price-conscious. In this way, they are similar to Apple with their iPhone products.
Those looking to buy the GPU for gaming will have to spend $1 599. The raw-power workhorse GPU, used in 3D generation, metaverse creation and graphic design will sell for around $5 000 a card.
What impresses me most about the product launch is that in the space of 12 months, Nvidia can create a chip four times more powerful than the current market leader. We back Nvidia because they are the dominant player in an industry that is changing very quickly.
Bright's Banter
Spotify (NYSE:SPOT) just announced the launch of audiobooks on its platform. The beta version of this service is being tested in the US before it comes to the rest of the world. As it stands, users will be able to buy and listen to more than 300 000 titles, which they can find in their search query box.
The streaming giant has conquered music, and forged a massively successful push into podcasts, so focusing on audiobooks next makes sense. Their goal is to be a one-stop-shop for all things audio. This can't be good news for apps like Audiobooks.com, Audible, Scribd, and Kobo books. As they say, competition is good for the consumer, and the best will survive.
Audiobooks is a $1.5 billion industry in the US alone. Amazon Audible is the leader with a 41% market share. The big advantage that Spotify has over many of these other apps is that it already has 200 million premium subscribers worldwide, while Audible has less than 30 million. My money is on Spotify!
Siri play the book "Against the Gods" on Spotify.
Signing Off
Asian markets are down this morning. Bourses in Shanghai, Seoul, and Tokyo are all in the red, and Hong Kong is sharply lower. Central bankers in Taiwan, Indonesia and the Philippines are all expected to raise interest rates today.
US equity futures are lower in early trade. The Rand is trading at R17.75 against the US Dollar, which is more or less unchanged from yesterday.
This afternoon the South African Reserve Bank will make an interest rate decision. Expectations are for a 75 basis point increase which will bring us back to pre-Covid levels.
This message is dedicated to Mahsa Amini, an Iranian woman who died after being arrested in Tehran by the Islamic Republic's morality police. Morality police, WTF?
