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Market scorecard

On Friday, US markets closed in the green again as technology shares carried the market higher. The S&P 500 ended above 5 000 points for the first time, bringing its returns this year to 5.4%, while the tech-heavy Nasdaq has risen 6.5% so far. Both indices are up 14 of the past 15 weeks, the longest such stretch since 1972 for the S&P 500.

In company news, Microsoft (NASDAQ: MSFT ) rose by 1.6%, propelling its market capitalisation to $3.125 trillion, a new record as the highest market value ever held by a publicly-traded company in America, surpassing the milestone set by Apple (NASDAQ: AAPL ) last year. Elsewhere, Expedia (NASDAQ: EXPE ) dropped 18% on news that the travel booking firm was replacing its CEO. Lastly, PepsiCo (NASDAQ: PEP ) was down 3.6% on disappointing sales.

In summary, the JSE All-share closed down 0.41%, but the S&P 500 rose 0.57%, and the Nasdaq danced 1.25% higher.

One thing, from Paul

Global coffee chain Starbucks (NASDAQ: SBUX ) had results out last week and the numbers were reasonably well-received. Global revenues were $9.4 billion for the three months and profits rose by 22% due to various efficiency improvements. They will pay out a nice quarterly dividend, at an annual yield of 2.34% per annum.

Starbucks now has 38 587 shops worldwide, of which 16 466 are in the US and 6 975 are in China. They spend about $3 billion a year on opening and equipping new stores. They are often in fun locations, like this one in Kobe, Japan.

Coffee drinking is gaining traction around the world as the middle class expands. Starbucks sells more than just cups of hot black coffee and shots of espresso. They also serve up a dazzling array of caffeinated milkshakes and iced drinks.

The stock price was rather quiet in 2023, probably because Starbucks' second most important market, China, is going through a tough patch. Forward guidance was a little underwhelming, full-year global same-store sales are expected to rise between 4% and 6% in 2024, down from previous estimates of 5% to 7% growth.

Starbucks has been a Vestact-recommended stock since February 2013, and over that time it's performed about in line with the S&P 500. That's a decent outcome, albeit not spectacular.

Byron's beats

We have a few clients who have recently retired or are reaching that stage in their lives. It used to make sense to start moving to cash or high-yielding products like bonds when one was reaching the end of your working career, but that notion has changed. These days people are retiring earlier and living longer. You could have up to 30 years of your adult life in retirement, not earning an income.

This means you need to continue growing your money at a rate well above inflation. As you might expect, we feel US equities is the best place to do that. Remember too, that 20-30 years still gives you a very long time horizon to ride the ups and downs of the market and to really benefit from its compound growth.

The stocks you own are some of the biggest and most profitable companies in history. There is no need to "de-risk", and pay a huge CGT bill once you stop working. Your money is already in very safe assets. In my view, the bigger risk is moving to some opaque "safe" income fund with high fees and then running out of money in 10 years time.

Michael's musings

If you are going to dream, you might as well dream big. The people that change the world are those who have the guts to make huge plans. Sam Altman, CEO of OpenAI, is said to be looking to raise between $5-$7 trillion to speed up AI development. Yes, that's 'T' for trillion.

For his plan to work, he has to start at the beginning of the supply chain, by increasing the number of precision machines available to manufacture the hi-tech chips needed to train and run AI applications. This is a big task. Then he needs to build vast numbers of chip foundries and lastly, he needs to ensure that there is enough energy available to power all the new AI data centres.

What stood out to me about his plan, apart from its audaciousness, is the potential size of the AI market. Big tech companies are currently spending tens of billions to ramp up AI capabilities; Altman is saying that they all need to add two zeros onto their capital spending plans. Nvidia (NASDAQ: NVDA ) is by far the leading chip provider to the AI industry. Looking at it through this lens, all of a sudden, its $1.8 trillion market cap doesn't look so big.

Bright's banter

Herms had another anne exceptionnelle in 2023 with total revenue reaching EUR13.4 billion, up 21% compared to 2022. This can be attributed to its affluent customer base, whose spending habits are largely unaffected by economic uncertainties.

In the fourth quarter, sales were EUR3.3 billion, rising by 18%. This was achieved despite a high comparison base in America and Asia, reflecting sustained sales momentum seen in Leather Goods and Saddlery, Ready-to-wear, and Watches.

Operating income increased by 20% to EUR5.6 billion, with annual recurring operating profitability reaching its highest level ever at 42.1% of sales. This is a high-margin profitable business.

Geographically, all areas posted solid performance, with sales increasing by approximately 20% across the board. The company also expanded its production capacities, particularly in leather goods, and continued to reinforce its local anchoring in France.

Among its most iconic offerings is the Birkin bag, famously coveted and scarce, often prompting customers to indulge in what's known as "Birkin bait" spending - buying multiple Herms products in hopes of securing a chance to be invited to purchase a Birkin bag. A perfect formula for infinite demand.

Recognising the importance of these loyal patrons, Herms prioritises their satisfaction through tailored experiences and exceptional service.

The brand has that je ne sais quoi when it comes to nurturing existing clientele. This is also reflected in its share price which was up 4.8% on Friday, bringing the year-to-date returns to 14.6%, ahead of rivals LVMH (EPA: LVMH ) (+11.7%) and Gucci owner Kering (EPA: PRTP ) (+5.1%).

Signing off

Asian markets that are open today seem to be down. Benchmarks are lower in Australia and India, but those in Hong Kong, mainland China and South Korea are closed for the week-long Lunar New Year holiday celebrations. Japan is also shut for National Foundation Day.

US equity futures have edged higher pre-market. It's going to be a slow morning in the US, after the Superbowl last night.

The Rand is trading at around R19.03 to the US Dollar. Eskom has put us into stage 6 load shedding due to boiler leaks at its power stations. Not good.

This week we'll see earnings numbers from Coke (NYSE: KO ), Shopify (NYSE: SHOP ), Airbnb (NASDAQ: ABNB ), Cisco (NASDAQ: CSCO ), Deere (NYSE: DE ), and Zoetis (NYSE: ZTS ). There will also be updated readings of inflation out from some large nations, including the US.

Have an excellent week.

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  • Patrick Mattheys @Patrick Mattheys
    Strange how everyone was up in arms over how energy was used to drive POW blockchain...No one complaining about energy requirements of AI driven hardware...might all boil down to who is holding the reins
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