Mega-Tech Flex

Market Scorecard

Ok, so we've had four days off for the Easter weekend. While we were relaxing, US markets were up on Thursday, closed on Friday and flat yesterday. All in all, quite satisfactory. A new earnings season is about to get underway, because US companies report fresh numbers every quarter. As active portfolio managers, we love the regular stock-specific news flow.

In company developments, Apple (NASDAQ:AAPL) shares were down 1.6% after a report from IDC saying that sales of MacBooks were down by 40% in the first quarter. That sounds rather dire, but keep in mind that many users upgraded their workstations during the Covid work-from-home era, and are now just using them. Lenovo and Dell sales also flopped by more than 30% during the period, while HP (NYSE:HPQ) shipments were down 24.4%.

On Thursday, the JSE All-share closed up 0.60%, yesterday, the S&P 500 rose 0.10%, and the Nasdaq closed just 0.03% lower.

One Thing, From Paul

According to the Financial Times of London (FT), only 20 stocks account for almost 90% of the S&P 500's aggregate gains so far this year. They note that "instability in the banking sector has driven down interest rate expectations and boosted the attraction of big tech".

Nvidia is up 83% so far this year, while Meta Platforms (NASDAQ:META) is up 76%. Apple's valuation has shot up by almost $600 billion, or 30%, in the past three months. If you strip out the mega-cap tech stocks, the S&P 500 would have only been up 1.4% for the first quarter, instead of 7%. Happily for Vestact clients, these are exactly the stocks that are the core of our portfolios.

The FT article includes an amusing quote from a JP Morgan sales trader called Jack Atherton: "Whenever the Fed hits the brakes, someone goes through the windshield, but mega-cap tech appears to be wearing an eight-point harness".

Byron's Beats

Bloomberg is also hopping on to the GPT/AI train. According to a release last week titled Introducing BloombergGPT, our 50-billion parameter large language model, purpose-built from scratch for finance, they've been investing heavily in machine learning for over a decade.

Bloomberg is a lot more than a news service. The Bloomberg Terminal is packed with finance data which can really benefit from machine learning. The release says they have a comprehensive 363 billion dataset of financial documents. By processing all the data available on their platform, AI can forecast economic reads like CPI and non-farm payrolls. Financial analysts can save a lot of time by getting working drafts of research reports done quickly. The opportunities in this area are big.

Michael's Musings

Last week, the Nvidia (NASDAQ:NVDA) share price wobbled on news that Google (NASDAQ:GOOGL) developed an AI supercomputer with better performance than Nvida's competing systems. At the moment, Nvidia is the only game in town when it comes to running AI programs. It currently controls about 90% of the market.

Google developed its own chips, Tensor Processing Units or TPU's, to use in the AI supercomputer. When the chip was designed in 2020, it was up to 1.7 times faster and had 1.9 times more power-efficient than a system based on Nvidia's A100 chip. Since then, Nvidia has released the H100, returning it to the performance lead.

Having competition is good for the sector and the consumer. It also helps that Vestact clients own both Google and Nvidia.

Bright's Banter

French luxury goods company, Hermes International (EPA:HRMS), known for its iconic Birkin and Kelly handbags, has surpassed a market value of EUR200 billion ($218 billion), becoming more valuable than Swiss drugmaker Novartis AG.

The company's shares have been rallying along with other luxury brands as investors view the sector as resistant to economic downturns, particularly in light of China's post-Covid recovery, which has revived demand for high-end designer products.

Hermes shares are up about 30% in 2023, and it's now the eighth most valuable company in the pan-European Stoxx 600 index. It is second in the luxury space only to France's LVMH (EPA:LVMH), or to give it its full name, Moet Hennessy Louis Vuitton SE.

Some analysts consider Hermes to be in a league of its own in terms of pricing power, with demand for its handbags consistently surpassing its production capacity, despite starting price tags of $8 000 or more for the most popular models. As part of plans to boost output, the company is set to open a new leather manufacturing plant in Normandy.

The brand is worth more than the combined value of several French companies in different industries, including Airbus (EPA:AIR), Renault (EPA:RENA), Vivendi (EPA:VIV), Carrefour (EPA:CARR), Societe Generale (EPA:SOGN), and Orange.

Signing Off

Asian markets are mostly up as positive momentum has picked up across the globe. Benchmarks rose in Hong Kong and South Korea, while mainland China slipped a little lower. Japanese shares are up on dovish comments from the new Bank of Japan governor Kazuo Ueda, who signalled that any monetary policy will be unchanged for now.

As noted above, US earnings season kicks off this week, with major banks reporting numbers on Friday. Traders will be watching closely for signs that profit margins are under pressure.

US equity futures are up a little in early trade. Fake internet money, also known as Bitcoin, rose past $30 000 for the first time since June last year. It has rallied more than 80% since the beginning of the year. Must be the whales that have done some buying, to get the pigeons excited again.

One buck (US) will cost you 18.52 bok (ZA) this morning.

Over in Dubai, someone paid $15 million for a licence plate, with the number "P7". Huh? Don't do anything that silly today. Have a good one!

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