Nasdaq drags on Wall St as AI slowdown fears hammer Nvidia, chipmakers
Market Scorecard
Yesterday, US markets rebounded sharply as dip-buyers came out in force. The S&P 500 notched its largest one-day gain since June 2020. In the short-term, the market may feel like it's walking on quicksand, but it's certainly providing patient investors with great long-term buying opportunities.
Commodity prices seem to have stalled, though the oil market is still very volatile. NY Merc crude last traded at around $110 a barrel. The UAE said it will call on other members of the OPEC+ alliance to boost oil output. That's a risky move that could set the country against fellow members of that cartel.
In company news, Goldman Sachs (NYSE:GS) raised its 2022 estimates for aggregate share buybacks of S&P 500 stocks to $1 trillion which is very positive. Elsewhere, Crowdstrike shares surged 13.6% on an earnings beat and strong sales outlook for 2022.
At the end of the day, the JSE All-share closed up 0.40%, the S&P 500 closed up 2.57%, and the Nasdaq rallied by 3.59%
Bright's Banter
Last night, Amazon (NASDAQ:AMZN) announced a stock split for the first time since 1999, and the fourth time since listing in 1997. This marks the end of an era of four-digit stock prices for the e-commerce juggernaut, joining other big tech companies like Tesla (NASDAQ:TSLA), Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) who recently turned to stock splits to attract more retail investors.
Current Amazon shareholders will end up with 20 shares for each one they currently own, so a 20-for-1 ratio. The share price will go from around $3 000 now to around $150 in future. The value of your portfolio holding will stay the same.
Stock splits don't really change anything at all. They do help retail investors with less cash to invest, and will also afford Amazon employees more flexibility in the management of their equity bonuses and other incentives.
On top of that news last night, Amazon also announced a new $10 billion share buyback, to take advantage of the recent share price pullback.
One Thing, From Paul
A few clients have asked why we did not buy them commodity stocks exactly a year ago. Due to supply shortages, oil, platinum, gold, and other metals stocks have done well since then. They are getting another push this month, thanks to the Russian invasion of Ukraine.
This is a question that only those with "hindsight vision" could ask! Take a look at the chart below. Why would one have thought to buy them in March 2020, at the end of a horrible, decade-long commodity price slide?
This article by Ben Carlson explains that commodity markets are a deeply cyclical and unpredictable mess. Trying to pick the bottoms and tops is just impossible.
In my view, stocks of commodity producers are not suitable for long-term investors. Traders may like to try their luck and buy them from time to time, especially if they have a contrarian view. You'd need to step in when everyone really hates them. Even then, you'll probably lose money, because they'd go down some more. You shouldn't buy them now, when they are flying. In the commodities sector, good times never last.
Byron's Beats
Yesterday, Aspen (JO:APNJ) reported really good half-year numbers. They delivered a 10% increase in revenue and a 37% rise in profits thanks to good margin expansion. The company made R7.77 per share for the six months. The strong organic growth in the business is very encouraging; these numbers were not aided by a once-off bump from vaccine sales.
In 2018 Aspen had debt of R54 billion which nearly forced the company into a rights issue, which would have significantly diluted existing shareholders. That was avoided, and management has done brilliantly to bring those debt levels down to just R19 billion today.
Aspen is a very well-run business with founder Stephen Saad still at the helm. He seems to be full of energy and enjoying himself. The team will have learned a lot from their woes of a few years back. We are still happy holders of this one in our local portfolios.
Michael's Musings
UC Berkeley is in a fight with the community of Berkeley over the number of students enrolled at the university. The residents took the university to court to put a cap on student numbers, due to a shortage of available housing in the area. Residents argue that the influx of students has pushed property prices up, displacing low-income renters.
The court ruled that UC Berkeley must revoke 2 500 acceptance letters for the 2022 intake. As a South African, it's very weird to hear of a university being punished for accepting too many learners.
Putting a cap on university enrolment numbers will probably lead to increases in tuition fees. From an economics perspective, the court ruling suggests that the price of housing is more important than the price of tertiary education. In the US, many commentators argue that tertiary education costs have risen too far already. I suppose that this will also accelerate the shift to online learning.
Signing Off
Asian markets have joined in on the global equities rebound today. Japan's Nikkei index jumped almost 4% and markets in mainland China and Hong Kong are also in the green.
US equity futures edged lower in early trade. The US Dollar is looking floppy, so the Rand has strengthened to R15.07 against the US Dollar. It even had a '14' in front of it at some point overnight.
US consumer price inflation data is due out today, and that basket is likely to hit another multi-decade high. This could be a market-moving datapoint, so we will be watching it closely. You can give it a miss and enjoy your afternoon. Go for a walk, perhaps?
