Market scorecard
US markets surged again yesterday and all major S&P 500 sectors ended in positive territory. Both mega-cap and small-cap stocks did well, with the so-called Mag-7 up 1.4%, and the Russell 2000 up 1.2%. Excitement is building ahead of the Fed rate cut next week.
In company news, grocery chain Kroger's (NYSE:KR) shares rose 7.2% after it raised its full-year sales guidance. Elsewhere, Adobe (NASDAQ:ADBE) fell 9% after issuing a revenue outlook that disappointed, despite its potential to deploy more AI image-creation tools. Finally, drug-developer Moderna (NASDAQ:MRNA) fell 12.3% after announcing plans to cut research spending.
In summary, the JSE All-share closed down 1.04%, but the S&P 500 rose 0.75%, and the Nasdaq ended a very decent 1.00% higher. This has turned into a good week.
One thing, from Paul
Advice for a Friday: get better at saying hello to strangers. First impressions are very powerful because humans decide if they like someone in the first few seconds of meeting.
These are the steps. (1) Focus intently and establish eye contact as you approach. (2) Relax your face and speak calmly and clearly in your natural register. (3) Extend your hand for a shake. (4) Say "Hello, what's your name?" and commit it to your memory immediately, by association. (5) Tell them your name. (6) Ask a follow-up question. (7) Raise some offbeat topic, to keep things interesting.
Every person you meet is a chance to build your network, learn something new, recruit a new ally, or make a new friend.
Byron's beats
One of the largest supermarket chains in the US, Kroger, has an average annual net profit margin of only 1.2% over the last 40 years. Retail is a tough business, so we tend to avoid this sector in our model portfolios.
By comparison, Visa (NYSE:V) had net profit margins of 54% in the last quarter. Providing cashless payment services to clients who shop at Kroger is a far better business than reselling groceries and household goods.
Companies with healthy profit margins are less risky. If times get tough, a business with low margins starts to lose money, whereas a business with high margins just has to tighten its belt.
Of our core holdings, Nvidia (NASDAQ:NVDA) has margins of 55%, Microsoft (NASDAQ:MSFT) 35% and Meta (NASDAQ:META) has 34%. These are some of the most profitable businesses around.
Michael's musings
The price of Brent crude oil briefly dropped below $70 a barrel this week, down from $96 a year ago. Remember when the price was in the $120s, shortly after the Russian invasion of Ukraine? The current price drop is being attributed to weak demand from China.
The fall in the price of oil is great news for South Africa. It means lower inflation, which means lower interest rates. On top of that, individuals and businesses save money from lower fuel bills, allowing them to spend more cash in other parts of our economy.
Lower petrol prices coupled with a near-certain interest rate cut next week are good reasons to feel a bit more optimistic about South African growth prospects in the next few quarters. It definitely makes it easier to ignore all the burst water pipes around Joburg, and the resulting craters they leave in the road.
Bright's banter
Good personal admin is crucial for long-term financial success. If you've got appreciating assets like properties or shares, staying organised is key. You can only make informed, real-time decisions if you keep on top of things.
Nicolas Puech, a 81-year-old Hermes heir, recently lost a court case in Switzerland where he accused his former wealth manager of mishandling his fortune, including EUR12 billion worth of Hermes shares. The shares are gone. They were probably sold to LVMH (EPA:LVMH) in 2013, as part of their attempted takeover of Hermes. Most of the cash from the share sale a decade ago is gone too.
The court found no evidence of wrongdoing, saying Puech had voluntarily handed over control of all his assets 20 years ago, and could have revoked that power at any time.
This story is a warning and a lesson. Despite being an heir to a multi-billion-dollar fortune, poor personal admin led to legal trouble, loss of control over assets, and losses. It's a reminder that even with immense wealth, managing your affairs properly is non-negotiable.
Signing off
Asian markets are mixed this morning, but Chinese stocks have slumped to their lowest levels since January 2019. This decline reflects growing investor skepticism about a potential recovery in earnings and the broader economy. One must wonder what Xi Jinping plans to do next? He's assumed all the power in that country, so he'll have to shoulder all the blame.
In local company news, Discovery issued a trading statement saying new business grew 18%, as a result they expect headline earnings per share to rise as much as 17%. Elsewhere, FirstRand (JO:FSRJ) reported a 4% rise in full-year earnings, held back by an accounting loss in its UK unit. The core business is growing slowly, with net interest income up 10%, supported by a 6% increase in lending activity and an 8% rise in deposits.
Pravin Gordhan died in the early hours of this morning. We might not have agreed with his socialist economic views, particularly while he was Minister of Public Enterprises, but he left South Africa a better place. SARS was transformed under his watch, the National Treasury was in safe hands while he was at the helm, and he stood up to state capture.
US equity futures are in the green pre-market. The Rand is trading at around R17.73 to the US Dollar.
Have a great weekend.