Investing.com’s stocks of the week
Market Scorecard
The S&P 500 rose to record close for the fifth consecutive day, and US futures are in the green overnight, so we are on course for a sixth day of new highs. According to financial media sites, the market is moving up because of the new Fed policy statement. According to some others on financial Twitter it's due to Trump giving a rousing speech as he accepted the Republican party nomination for president. Maybe it is a bit of both? Not that it matters much, because short term stock market moves are impossible to decipher. Real investors should only concern themselves with where the market will be years from now. For the next 2 months, we will witness the world's biggest and most expensive reality entertainment show, a US presidential election. Over $1 billion will be spent on advertising and other promotional events because the party who pushes their message the loudest and most effectively, normally wins the election. Trump is currently behind in the polls, but we have seen bigger comebacks in the past - the outcome of this one is far from a foregone conclusion.
As an investor, what should you be doing? Well, just keep calm and carry on. This circus will just be a blip on the radar in the long-term. No-one knows how the stock market will react to the outcome. Four years ago, people worried about a crash in the aftermath of Trump's surprise victory. The market went down for about 2 hours, but by the end of the first day of trading, Wall Street indices were much higher. Some now say that the market will collapse if Biden wins, but that's probably just fear-mongering from conservatives. The stock market keeps going higher because US companies keep innovating, and that happens regardless of who is in the White House. Remember that when Trump took over, stocks were already in record-high territory.
Yesterday the JSE All-share closed up 0.53%, the S&P 500 closed up 0.17%, and the Nasdaq closed down 0.34%.
One Thing, From Paul
About a decade ago on a CNBC Africa TV show, I was feeling feisty and felt like saying something provocative, so I blurted out "inflation is dead". My co-anchor Bronwyn Nielsen and our guest looked at me like I had lost my mind.
Prior to about 2005, South Africa had a really very serious problem with inflation. When I was younger, everything went up every year, by 10%. So my comments were seen to be premature.
Anyway, that was then and this is now. Yesterday, after a long period in which inflation has been very low, US Federal Reserve chairman Jay Powell announced that his institution would no longer worry so much about price stability and henceforth concern itself mostly with economic growth and maximum employment.
His statement: "Following periods when inflation has been running persistently below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time." This seems to mean that the Fed won't raise interest rates if it expects a pick up inflation. It is now willing to allow inflation to run hotter than normal in order to support the labour market and broader economy.
Powell called it a "robust updating" of Fed policy. The changes were codified in a policy blueprint called the "Statement on Longer-Run Goals and Monetary Policy Strategy".
This underscores the idea that interest rates will remain low for a very long time, and that stocks are the best asset class to focus upon.
Michael's Musings
I think it is pretty safe to say that Covid-19 has fundamentally changed our world. Those who can figure out what the future looks like, and the ripple effects created, will be the ones who profit. This is one of the reasons why our team at Vestact spends so much time reading. Also, we try to read as widely as possible.
I found this piece on how architecture is changing rather interesting - Covid-19 is crushing the architecture industry but not in the ways you'd expect. I think we see can similar trends globally.
It makes sense that office space and hospitality projects have been cancelled. Most corporates are now taking a wait and see approach. How many employees will return to work? Does the office design require tweaking for more social distancing? How many competitors will go bust, thus increasing the supply of office space?
Investment in the hospitality and travel industries has also stalled. Airlines are grounded and tourism is almost non-existent. Also, many company events and retreats have been moved online. Personally, I don't think it will be too long until all the pent up demand to visit new places explodes, and we see a surge in holidaymakers all over the world. Being locked up at home is boring and we are reminded of why we value travel so highly.
Another recent trend is a big rise in homebuilding and renovation. This is the case in Joburg too, and when I'm out on my morning jog, I can see bricks and sand on many pavements. I was speaking to a builder recently, and he said he is struggling to get hold of clay bricks at the moment. Mr Price Home has also confirmed this trend, saying that their Home division has seen an increase in demand for homewares.
As investors, it is more important to think about where the long-term trends are pointing. Is the current home renovation boom just a passing phase, or is it a structural change? Will companies go back to the tried and tested working hours from 9 to 5, or is working from home an accepted alternative now? These are questions that we think about deeply and then position ourselves accordingly.
Bright's Banter
Salesforce (NYSE:CRM) is not a company we follow very closely but I couldn't help but notice when the share price surged over 26% on one day, thanks to a strong set of results. The enterprise-software company reported record sales numbers and raised its guidance for the year, showing that demand for cloud-computing services is booming due to the shift towards digital processes.
The San Francisco-based company said sales grew by 29% to $5.15 billion, crushing all analysts' expectations. Salesforce has been a big enabler of the working from home trend. Cloud infrastructure businesses have seen a nice increase in their share prices this year.
The other big news for the company was that it is going to be added to the Dow Jones Industrial Average.
Signing Off
News out of Asia this morning is that Japanese PM Shinzo Abe is resigning due to poor health. The suddenness of the news spooked Asian markets a bit. The Rand shot out to $/R 17.09 overnight but is now back to $/R16.96. The Tour de France starts tomorrow, enjoy!
