Market scorecard
US markets closed higher on Friday, capping off their best week of the whole year. Investors are feeling optimistic about strong consumer sentiment data, interest rate cuts and incoming President Trump's pro-growth policies. All of those should lead to wider corporate profits next year. The S&P 500 rose for the fourth day in a row, hitting its 50th record high of 2024 and posting a weekly gain of 4.7%.
In company news, Tesla's (NASDAQ:TSLA) surge pushed its market value back above the $1 trillion mark. Elsewhere, Under Armour (NYSE:UAA) fell 13% despite reporting results that beat expectations, as founder Kevin Plank continues to wrestle with its cost base. Finally, Pinterest (NYSE:PINS) shares dropped 14% due to a weak sales forecast for the holiday quarter, as it battles to keep up with larger competitors like Meta Platforms (NASDAQ:META) and Snap (NYSE:SNAP).
On Friday, the JSE All-share fell 1.02%, but the S&P 500 rose 0.38%, and the Nasdaq rose by a whisker, just 0.09%.
Michael's musings
Vestact-recommended biotech company Amgen (NASDAQ:AMGN) had results out two weeks ago. The stock has been okay this year, up 9%, but has underperformed the broader market. All the complicated drug names can make writing about their results boring, but I'll do my best to keep things simple for the 617 clients that own the share.
Amgen posted a 23% rise in revenue to $8.5 billion for the quarter. There are a couple of fast-growing new drugs that have contributed to that impressive growth.
- Lumakras, which treats lung cancer, increased sales by 88%
- Blincyto, which combats leukemia, increased sales by 49%
- Repatha, a medication for cholesterol, increased sales by 40%
- Evenity, for osteoporosis, increased sales by 30%
Even though those four drugs had solid growth, much of that was overshadowed by the 20% drop in sales for rheumatoid arthritis drug Enbrel, which was Amgen's top-seller a year ago. Unfortunately, many new rheumatoid arthritis treatments have come to market and are hurting volumes and the pricing of Enbrel. The company expects further price pressure but stabilising volumes.
From their $8.5 billion in sales, Amgen was able to produce $3.3 billion in free cash flow, of which $2.4 billion was used to reduce debt and $1.2 billion was paid out in a dividend. That means that $300 million more was paid out than generated in cash flow. The rest was taken from cash on the balance sheet, which means that cash-on-hand declined to $9 billion, still very healthy.
It's worth noting that Amgen spent an impressive $1.44 billion on drug research and development last quarter, a 35% increase from a year ago.
There is considerable excitement about Amgen's weight loss drug MariTide, a once-a month injection, which is expected to hit the market in 2027. If the drug is successful, it will be a nice tailwind; if not, Amgen still has a very broad stable of promising drugs.
One thing, from Paul
Under the Biden administration, Lina Khan at the Federal Trade Commission (FTC) and Jonathan Kanter at the Justice Department (DoJ) were distinctly anti-corporate. With Trump arriving in the White House early next year, those two will be clearing their desks and putting out their CVs.
The FTC and DoJ had active processes or cases running against most tech giants, including Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Meta and Visa (NYSE:V). Those are likely to be dumped, or just peter out. Since the election outcome became clear, that group of stocks have added nearly a trillion Dollars of collective market cap.
We also expect the return of large mergers and acquisitions in 2025. Wall Street's dealmakers are already updating their target lists. Investment banking titans Goldman Sachs, Morgan Stanley and JPMorgan Chase (NYSE:JPM) shot up the day after the election.
The assumption is that the incoming administration will prove much more friendly to major mergers and acquisition transactions that have been off the table for the past four years.
In healthcare, a similar shift is likely and large pharma companies will look closely at some megamergers. Last year's combinations of Pfizer (NYSE:PFE) and Seagen (for $43 billion) and Amgen's deal to gobble up Horizon Therapeutics (for $27.8 billion) were fiercely resisted by the FTC. How about an Eli Lilly (NYSE:LLY) and Amgen combination?
We are not automatically supportive of these deals, but they do make life interesting.
Byron's beats
After Trump won back the presidency last week, markets shot higher. But some shares did better than others. Tesla surged 15% on the day. Elon Musk was a very visible supporter of Trump's campaign, but does that justify a $120 billion plus increase in Tesla's market cap? Perhaps not, but there are various theories as to how the Trump administration could be beneficial to Tesla.
The main one I have come across relates to self-driving software regulation. If Musk gets his way, there will be a single autonomous driving standard applied throughout the whole of the US, instead of each state being responsible for the regulation. State-by-state rules would be a nightmare to navigate.
Ironically, Trump is not a fan of electric vehicles. He wants to support old-school car manufacturers and oil and gas companies. That could have a negative impact on Tesla sales as EV subsidies are cancelled. Having said that, it could actually result in less competition for Tesla.
Either way, we have 403 clients who own Tesla and they sure enjoyed the rally last week.
Bright's banter
Palantir (NYSE:PLTR) is seeing significant growth in demand for its AI-focused products in both government and commercial sectors. If you haven't heard of the company before, it focuses on big-data analytics.
US commercial revenue is projected to grow by over 50% this year, surpassing $687 million, with a focus on e-commerce, advertising, and cloud services.
Business done with the US government rose by 40% year-on-year in Q3, reaching $320 million. Palantir works with multiple branches of the US military and intelligence community and has benefitted from increased defence spending and partnerships like the one with Microsoft to use OpenAI models in secure settings.
Palantir's share price is up 252% this year. It was recently included in the S&P 500. CEO Alex Karp also acknowledged support from retail investors, saying, "I love it that you guys are winning.".
Signing off
Asian markets are mostly down this morning, with Hong Kong leading the fall. Investors were disappointed by Beijing's latest 10 trillion Yuan ($1.39 trillion) debt package aimed at easing local government financial strains and boosting economic growth. Market participants want serious helicopter money!
In local company news, Richemont (JO:CFRJ) dropped 5% on Friday after sales dropped 1% to EUR10 billion, missing expectations due to continued weakness in China, its largest market. Operating profit for the six months ended September fell 17% to EUR2.2 billion, slightly below forecasts. We are not sure when this headwind will settle.
US equity futures are unchanged pre-market. The Rand is trading at R17.62 to the US Dollar.
Things will be much quieter this week after the crazy one that just passed. Take a breath and get settled, then keep going about your business. Let us know if you have any questions.