Market Scorecard
Markets were pushed higher yesterday by news that the Trump administration was considering fast tracking a UK experimental vaccine for Covid-19. On top of that, China agreed with the US to press ahead with the bilateral trade deal reached earlier in the year. Investors took all this news very well, with major bourses higher all over the globe.
After the market close last night ratings firm S&P Global (NYSE:SPGI) announced three changes to the famous Dow Jones Industrial Average. The index is price weighted and the imminent share split of Apple (NASDAQ:AAPL) forced some adjustments. Salesforce is replacing Exxon Mobil (NYSE:XOM), Honeywell (NYSE:HON) is replacing Raytheon (NYSE:RTN) and our very own Amgen (NASDAQ:AMGN) is replacing Pfizer (NYSE:PFE). Amgen is up 4% on the news.
These moves are an interesting sign of the times. The 30 components of the Dow are selected by a committee, mostly made up of editors at the Wall Street Journal. It is considered to be the media's favourite market barometer, representing the broader stock market and economy. At Vestact we don't take the Dow too seriously, preferring to follow the capitalisation-weighted S&P500 index. A price weighted index is flawed because a nominal share price of a company does not really represent its size and influence. Either way, the inclusion is a nice boost of confidence for Amgen and its shareholders.
Yesterday the JSE All-share closed up 1.21%, the S&P 500 closed up 1% exactly, and the Nasdaq closed up 0.6%.
One Thing, From Paul
A client sent me this useful article form the UK Guardian which sets out five reasons why the US stock market has staged such a miraculous turnaround since the initial Covid-19 slump in March 2020.
The arguments laid out here are (1) Federal Reserve action, (2) the tech giants, (3) normal life is resuming, (4) a medical breakthrough? and (5) there is no investment alternative.
I don't have any problems with this list, but I would have ordered them differently. For me numbers 3 and 5 are the most important and enduring. The global fixation with a bothersome virus is waning, and there really is no other asset class worth getting excited about for the foreseeable future.
I like news pieces that are lists. Give this one a read.Five factors behind the US stock market's miraculous turnaround.
Byron's Beats
I have been quite vocal over the last few years about the South African Reserve Bank needing to cut interest rates. In my eyes, if we are well within our inflation targets, lowering the cost of borrowing provides an immediate and much needed boost to our economy at the stroke of a pen. Don't get me wrong, I am a fan Lesetja Kganyago and I know that his calm and conservative nature is key for our economic stability. But that doesn't mean I cannot disagree with him sometimes.
In any event, a national lockdown took care of the situation, crashing the economy and forcing our Reserve Bank to cut rates by 3.25% in a few months. Has it helped?
According to this Business Insider article titled Surprise! The SA property market has roared back and buyers now want bigger homes, lower interest rates has done wonders for the residential property sector. The knock on benefits of that are big for the rest of the economy.
Let's hope we see more positive side effects of lower interest rates filtering through, I wouldn't be too surprised if we did.
Bright's Banter
Last week Wednesday Apple became the first US company to exceed $2 trillion in market capitalisation, when the share price topped $468. Apparently the only other company to ever be above that mark was Saudi Aramco (SE:2222), the Saudi Arabian oil and gas giant. Only a tiny part of that company is traded though, and the price is managed by the Saudi government, so it's dubious. Yesterday, Apple's share price closed at $503 per share, with a resulting market capitalisation of $2.1 trillion, take that Aramco!
Apple has had quite a colourful journey since its founding on the first of April back in 1976. The company was started by Steve Wozniak, Steve Jobs and Ronald Wayne. On the eleventh of April that year, Wayne sold his 10% stake back to Steve Jobs for $800 or what some might say is tens of billions in today's dollars. The infographic below shows Apple's growth for the past 20 years.
Infographic courtesy of: Statista
Signing Off
Many companies on the local market are reporting earnings for the period that included the Covid-19 lockdown. We have had updates from Bidcorp (JO:BIDJ) and Famous Brands which we will write about in the coming days. Absa (JO:ABGJ) Bank's numbers were better than expected, and as we saw with the global banks their trading division made a bomb. Further results from Italtile, Imperial (JO:IPLJ) and Lewis group today will give us more information about retail and logistics trading conditions. The Rand is holding steady below 17, now at R16.91 to the USD.