Gold rebounds as oil prices ease ahead of key Fed decision
Market Scorecard
Yesterday, US markets ended the session lower a day before the critical Federal Reserve meeting. Stocks opened in the red, with losses slowly building as the day progressed. All eyes will be on the Fed rate announcement this evening. US central bankers are expected to hike interest rates by 0.75bps, in their efforts to tame inflation.
In company news, Walmart (NYSE:WMT) dropped 7.6% after the US's largest retailer warned that higher prices for food and fuel were causing consumers to pull back. Looking at Vestact stocks that reported after the bell; Microsoft (NASDAQ:MSFT) jumped 4% in extended trading on a strong sales forecast; Alphabet (NASDAQ:GOOGL) is up 5%; Stryker (NYSE:SYK) is up 1%; Visa (NYSE:V) is flat. We will take that. More about the results in the days ahead.
Yesterday, the JSE All-share closed up 0.99%, the S&P 500 fell 1.15%, and the Nasdaq retreated 1.87%.
Bright's Banter
Google's parent company, Alphabet, reported a second-quarter top line that met analysts' expectations, showing how resilient the internet giant's business model is amid all the macroeconomic pressures that are weighing on the digital ads market. The shares rose as much as 5.7% in after-hours trading before cooling off to 4.9%.
Alphabet posted $69.7 billion second-quarter revenue, up 12.6% year-on-year, of which $40.7 billion was Search. Net income dropped by 13.6% to $16 billion. A special mention to YouTube, a division that generated $7.34 billion in ad revenue, holding its own against TikTok. Sales in the Google Cloud division rose 35.6% to $6.28 billion, but accelerated spending in the division led to losses of $858 million.
As of July 2022, online search engine Google accounted for nearly 83% of the global search market, while Bing sat at 9% and Yahoo was 2.55%. Ever since the introduction of Google Search in 1997, the worldwide market share of all search engines has been rather lopsided thanks to Google's dominance.
The crunch in marketing expenditure seems to be impacting the smaller social media companies more. Google's ad sales beat expectations, it seems that advertisers cannot justify cutting spend on the platform because of its dominance in search.
Google is still sitting on a $125 billion cash pile, which can easily help it weather any storm that may pass by. I like a business that has a strong business model with conservative management.
Find more statistics at Statista
Byron's Beats
The best business operating environment is a predictable one. That is why quickly rising inflation and the reactive interest rate increases can be disruptive. Businesses did not plan for these variables and it is tough to adjust in a short period.
The same can be said for the extraordinary cycles created by Covid and global lockdowns. Some businesses were shut down and suffered immediately. Others grew too fast and had to increase capacity to meet the new demand.
Many benefactors of covid like Zoom (NASDAQ:ZM), Netflix (NASDAQ:NFLX), PayPal (NASDAQ:PYPL) and Shopify (NYSE:SHOP) are trading lower than their pre-pandemic levels. In fact Shopify just announced that they are laying off 10% of their workforce as they readjust to a post-pandemic world. Be careful not to buy a stock just because it has experienced some recent luck.
In the real world, there will never be a perfectly predictable environment. As an investor, you need to pick companies that can best navigate the bad and good times.
Michael's Musings
I'm busy renovating a new house. My wife is an architect, so regular renovations are a hazard of the trade. This headline stood out to me because I'm very aware of what it costs to make the intended changes to my house - Johannesburg is still one of the cheapest places in the world to build, new data shows.
Of interest to me is the relationship between building costs and resale value. Even with Joburg being a cheap place to build, it is very difficult to get your money back. In many areas, houses are selling for less than their replacement value. My assumption is that replacement building value should create an artificial floor on property prices, but current supply and demand dynamics means it does not.
If replacement cost is currently higher than property market prices, does that mean construction costs will come down or will property prices move higher? For the sake of the economy, I hope it is the latter.
Signing Off
Asian markets retreated this morning, tracking the red close we saw from the US. Hong Kong, mainland China, and South Korea are in the red, while Japan was little changed.
The busiest week for second-quarter earnings pushes ahead with Facebook's parent company Meta Platforms (NASDAQ:META) reporting after the market closes today.
US equity futures edged higher in early trade as Microsoft's (NASDAQ:MSFT) upbeat outlook helped alleviate some of the wider caution in markets. The Rand is trading at around R16.89 to the US Dollar.
