Market scorecard
US markets soared to new highs yesterday as Fed Chair Jerome Powell highlighted the economy's resilience. Big tech led the charge, pushing the S&P 500 to its 56th record close of 2024, while the Nasdaq jumped over 1%. Nvidia (NASDAQ:NVDA) was the standout among the "Magnificent Seven" megacaps, and is now up almost 65% this year. How nice!
In company news, Salesforce (NYSE:CRM) (+11%) and Marvell Technology (NASDAQ:MRVL) (+23%) surged after strong results bolstered optimism about their ability to ride the AI boom sweeping the industry. Elsewhere, Eli Lilly (NYSE:LLY)'s weight-loss drug Zepbound beat Novo Nordisk's (CSE:NOVOb) Wegovy in their first head-to-head trial, giving Lilly a potential edge in the blockbuster obesity treatment race. Lilly stock rose 2.0%.
Izolo, the JSE All-share was up 0.58%, the S&P 500 rose 0.61%, and the Nasdaq was 1.3% higher. A nice green day.
One thing, from Paul
In 1930, world-renowned economist John Maynard Keynes predicted that his grandchildren would work just 15 hours a week. In other words, by now, we'd all just show up on Tuesdays and Wednesdays and then take a five-day weekend.
In 1930 there were no computers, AI or other modern office tools. Keynes just assumed that thanks to machines, technology and new ideas, people would get more productive. Things would be plentiful, and we'd all just decide to work less.
In fact, hours worked have stayed much the same. In the United States in 1950, people worked about 38 hours a week on average. Today, seven decades later, it's 34 hours a week. It seems that Keynes underestimated the human desire to compete.
National Public Radio (NPR) interviewed two of Keynes' direct descendants to ask them what was going on. Amusingly, they both worked well over 50 hours a week. You can read the brief transcript here.
Byron's beats
Interest rates have a huge bearing on stock market levels. We were reminded of that in a not-so-subtle way during 2022, when rates were hiked sharply to combat inflation and the market crashed.
There's a great deal of attention focused on the role of the Fed in determining interest rates but people often forget that they only set the interbank rate, at which banks borrow from each other overnight. The market determines the rates of most other debt products, and many have highly liquid markets where buyers and sellers meet at a mid-point every day.
I enjoyed this graph shared by Eddy Elfenbein. It shows the yield on US 2-year treasuries in red versus the Fed Funds rate in blue. Essentially the treasury yield is front-running the Fed Funds rate. It has done a pretty good job of it so far, rising well ahead of the Fed and plateauing before the cuts.
Notice the recent bump in the 2-year yield. That was after Trump won the election. The expectation is that his policies are going to be inflationary. It is quite ironic that many of his voters stated that the rise in the cost of living was a huge factor in their support of him.
Based on the expectations of interest rate traders, we may have one more cut and then a prolonged period of no cuts.
Michael's musings
France is in political limbo because its parliament just passed a no-confidence motion against the prime minister Michel Barnier, after only three months on the job. The problem is that France has an unstable minority government, with some strong voices on the far left and far right. The contentious point at the moment is trying to get a budget approved. The left wants higher taxes and the right wants spending cuts. Barnier proposed a budget with spending cuts and higher taxes, but not enough to appease each side.
All this instability has resulted in French borrowing costs moving higher than Greece. For perspective, Greece defaulted on its debt in 2015, but since then, it has restructured its finances, and it is now paying down its debts quickly. Conversely, France has a budget deficit of 6% and is pilling up debt quickly.
Interest rates are set by the market based on the perceived risk of each government. At the moment, the market is saying that French government spending makes its debt more risky than Greek debt. What is interesting is that debt-to-GDP of France, Greece and South Africa is 112%, 159% and 72%, respectively. Due to South African political risk and our higher inflation target, we can only borrow money at around 9%, France and Greece are borrowing money at around 3%. Because of their much lower borrowing cost, they are able to have a much higher debt-to-GDP ratio.
Imagine what would be possible if South Africa was seen as more serious and reliable, which would drop our borrowing costs. What doesn't help is things like the ANC-shuffle, where corruption-accused ministers are moved from one portfolio to another, instead of being fired.
Bright's banter
Spotify (NYSE:SPOT) dominates the US digital audio scene with 103.6 million listeners. That's more then the second and third place music platforms combined.
About 30.3% of Americans are Spotify users, and that share is expected to grow modestly through 2028. With slow growth in first-time listeners and most users sticking to one service, competitors face an uphill battle to catch the streaming giant.
Music is a solid business if monetised well, and Spotify appears to have cracked the code after navigating some early challenges in its journey.
Signing off
Asian markets are mixed this morning. South Korean equities continued to decline as the ruling party seeks to block impeachment proceedings against President Yoon Suk Yeol, which may occur on Saturday.
In local company news, Tiger Brands (JO:TBSJ) reported a 4% rise in full-year earnings, driven by price hikes, asset sales, and export growth, despite an 8% domestic volume drop. Culinary and snacks segments performed well, but grains saw a 55% dip in operating income.
US equity futures are flat pre-market. Bitcoin crested $100 000 overnight. The Rand is trading at around R18.16 to the greenback.
Have a prosperous day.