Wall Street ends down, calls for AI slowdown pummel chipmakers
Market scorecard
US markets bounced higher on Monday, ending a nasty four-day drop that started last week. Tech stocks led the rally with Tesla (NASDAQ:TSLA) up 7.3% and Nvidia (NASDAQ:NVDA) 8.5% higher. We own both, so we went to sleep last night happy.
US treasury bond yields continued their climb to new decade-plus highs. The ten year is at 4.34%. When yields rise the price of bonds falls. Paul takes a look at the bond market today, see below.
In company news, BHP Group (JO:BHPJ) slipped by 1.4% in Australia after the world's biggest miner reported a 37% drop in full-year profits, with China's weak recovery weighing on demand for commodities. SoftBank semiconductor unit Arm has officially filed for what is set to be this year's largest US initial public offering. Finally, Palo Alto Networks (NASDAQ:PANW), the cybersecurity software company, was the biggest gainer (+14.8%) after good results last week.
Yesterday, the JSE All-share climbed 0.93%, the S&P 500 rose 0.69%, and the Nasdaq vaulted 1.56% higher.
One thing, from Paul
What are bonds, and why don't we own them? Bonds are securities that are issued by banks, corporates and governments, bought by long-term investors, that pay out pre-arranged amounts of interest and then get redeemed at a point. The owners of bonds get regular cash payments, and after the agreed time, they get their capital back.
The companies that we own all issue bonds when they need capital to grow. They don't issue new shares, since that would dilute their existing shareholders. The global bond market is very big, worth about $141 trillion at last count. That's bigger than the aggregate value of the world's stock markets.
Bonds are boring. There's not much upside in buying them, other than the certainty of knowing that they will pay out what's promised. That is, unless the bond issuer goes belly up, like African Bank, Steinhoff or Argentina.
We prefer the unlimited upside of being ordinary shareholders. We benefit from technological progress and human creativity and profit from the ingenuity of the people who work at these businesses and navigate around the challenges of the day.
Byron's beats
Owning diverse assets is very helpful when things get wobbly. For example, Amgen (NASDAQ:AMGN) is up 13% so far this month while the broader market is down 4%. The Nasdaq has been even harder hit, down 5.6%.
Stocks like Amgen, Johnson & Johnson (NYSE:JNJ) and Starbucks (NASDAQ:SBUX) don't get much airtime because they are not as exciting as some of the high-flying tech stocks, but they often do the heavy lifting when times get tough.
We are still very happy to be overexposed to the tech industry. In our view, large cap tech leaders will continue to grow, innovate and influence our lives more than ever. We are patient investors and our feathers do not get ruffled by a bit of volatility.
Michael's musings
Novo Nordisk's (CSE:NOVOb) growing global prominence has created a welcome tailwind for the Danish economy. The drug manufacturer's market cap is now larger than the GDP of Denmark! Yes, I know that market cap and GDP are not comparable, but it does put things into perspective. For some reason, we received a few grumpy emails when I compared Elon Musk's wealth to South Africa's GDP.
Novo Nordisk manufactures the new blockbuster drugs for weight loss and diabetes, called Ozempic and Wegovy. Thanks to soaring profits, Novo Nordisk is bringing significant amounts of money into Denmark, allowing the Danish central bank to keep interest rates lower than the EU.
The Danish Krone has a soft peg to the Euro. One of the ways that the Krone is kept in line with the Euro is through changes in interest rates. With Novo Nordisk repatriating so many US Dollars, demand for the Krone is higher than normal. The Danish central bank has offset that by keeping interest rates low, to the benefit of local borrowers.
Well done to Denmark and Novo Nordisk.
Bright's banter
Instacart, the leading US online grocery delivery company, is preparing for an initial public offering (IPO) in September. They are said to be considering a traditional IPO on the Nasdaq, a shift from its previous consideration of a direct listing.
Instacart was founded in June 2012 by entrepreneur Apoorva Mehta, a former Amazon (NASDAQ:AMZN) employee, with help from Max Mullen and Brandon Leonardo. It wasn't until the Covid pandemic that Instacart suddenly became a lifeline for millions of North American consumers. Five years of growth packed into one year helped sales soar by 330% in 2020. The current CEO is Fidji Simo.
The move comes after Instacart delayed its IPO plans due to market uncertainties last year. Instacart's previous valuation stood at $39 billion in 2021, but the company later lowered it to around $13 billion.
A successful Instacart IPO will be another shot in the arm (pun intended) for the overall health of the equity market.
Signing off
Asian markets are mostly higher this morning, following Wall Street's rebound yesterday. Japan's Nikkei led the gains, while Hong Kong's Hang Seng snapped a seven-day losing streak. Benchmarks also rose in mainland China and South Korea. The People's Bank of China continues to fiddle with the currency as it battles the Yuan bears.
US equity futures are unchanged in early trade. The Rand is looking a little healthier, now trading at around R18.95 to the greenback.
Enjoy the day.
