Oil price rally pauses as U.S. inventory build offsets Mideast supply jitters
Market Scorecard
Stocks opened lower on Monday morning and stayed in the red all day. The drop was not too pronounced, probably just caused by lingering concerns about Chinese lockdowns and the Fed's interest rate game plan. For now, our hoped-for Santa Claus market rally is deferred.
Disney (NYSE:DIS) rallied 6.3%, it was up as much as 10% at one point, on news of the CEO switch back to the previous guy. Elsewhere, shares of discounter Ross Stores (NASDAQ:ROST) rose 4.3% on good earnings. Lastly, Zoom fell 6.7% in after-market trading as it cut revenue guidance. The share is down around 70% over the last year.
Yesterday the JSE All-share closed down 0.88%, the S&P 500 fell by 0.39%, and the Nasdaq was under pressure, sagging by 1.09%.
One Thing, From Paul
Our portfolio holdings are selected from high-growth industries, where profits are rising. Then we typically pick the largest company in the sector. We really prefer those that are US-based.
So for example, we like the outlook for semiconductor sales, as many manufactured goods now have chips in them, and ever more complex computers are built and connected together online. Then we buy Nvidia, the largest company in the sector, with the most compelling products. There are lots of other semiconductor companies.
Similarly, we have a view that humans are becoming more active and will dress less formally, so we want to be invested in the athleisure industry. That leads us to Nike (NYSE:NKE), rather than Adidas (ETR:ADSGN) which is smaller and based in Europe.
More examples: we own Tesla (NASDAQ:TSLA), not Nio. Amazon (NASDAQ:AMZN), not Mercadolibre or Coupang. Starbucks (NASDAQ:SBUX), not the Black Rifle Coffee Company.
Smaller companies in a thriving industry will probably do just fine, but tend to be more volatile, and prone to making mistakes. We prefer the more conservative option of investing in the industry leader. Then we hold on for a long time.
Byron's Beats
The US economic data coming through continues to point towards lower inflation. The used-car bubble has burst with prices hitting a 52-week low. I have seen a similar trend in South Africa, and that will cause some short term pain for WeBuyCars and Transaction Capital (JO:TCPJ).
Fertiliser prices have come down 39% since peaking in May. See the image below from Charlie Bilello. This will be welcome relief for farmers around the world and help to lower food prices down the line.
Freight prices also continue to drop. They are at a 23-month low, down 73% from the highs. Music to my ears.
Lastly, the oil price was crushed on the news that China might be locking down again. Not great news for China but cheaper oil is big win for the rest of us. The next US CPI read will be released on the 13th of December. Hopefully a positive (lower) data point will set the tone for a good festive season.
Michael's Musings
Last week Ford's (NYSE:F) CEO, Jim Farley, noted that building electric vehicles required 40% fewer people on the assembly line. The simpler drivetrain means it is easier to install. Ford's solution is to bring more of the supply chain in-house, limiting the number of retrenchments. Ford might not be directly laying off people, but if they stop buying from their current suppliers, there will be job losses.
In the developed world, where there is a labour shortage, needing 40% fewer employees is a good thing. For the developing world, it will be more of a problem. What will happen to our local car plants and surrounding communities if they retrench a large percentage of the workforce?
A world full of EVs will be on us quicker than many expect. Ford plans to have half of its production to be EVs by 2030. Most of Europe will ban combustion vehicles in the next decade. It means that we need to start planning now for how our manufacturing areas will adapt.
Signing Off
Asian markets are mixed this morning. Tokyo is up, Hong Kong is down and Shanghai is flat. The drawn out Covid nightmare in China continues. What do they expect with ineffective vaccines and a policy of hard lockdowns at the first sign of an infection?
US futures are currently flat, but we are still 7 hours away from the Wall Street open, at 16h30 SAST. The USD-ZAR exchange rate is currently R17.26.
South African President Cyril Ramaphosa begins a two-day state visit to the UK today. While he hangs out with King Charles III, we'll be down here, trying to keep the show on the road.
