Market scorecard
US stocks lost steam on Friday as declines in bank shares weighed on the broader market. The S&P 500 ended the week down, the first time since early September. Tech stocks held strong, so the Nasdaq closed in the green. Tesla (NASDAQ:TSLA) rose another 3.3% on the day, securing a solid 23% gain for the week.
In company news, Deckers Outdoor (NYSE:DECK) jumped 10.5% after reporting strong sales and lifting their annual outlook, thanks to firm demand for its Hoka and UGG brands. Meanwhile, Capri Holdings (NYSE:CPRI) plummeted nearly 49% after a federal judge blocked the planned $8.5 billion acquisition by fashion brand conglomerate Tapestry (NYSE:TPR), whose shares surged 13.5% on the news.
Here is the summary of Friday's moves. The JSE All-share was up a tiny 0.09%, the S&P 500 fell just 0.03%, and the Nasdaq was 0.56% higher.
One thing, from Paul
Goldman Sachs' recent prediction that the S&P 500 will deliver just 3% annualised nominal total returns over the next 10 years has drawn widespread derision.
Returns that low over a 10-year stretch are very rare. 91% of all rolling 10-year annual returns have been higher than that, according to Ben Carlson at Ritholz Wealth. Those sub-3% outcomes are usually caused by an economic crisis or global calamity.
If it makes you feel better, JPMorgan Asset Management expects large-cap US stocks to "return an annualised 6.7% over the next 10-15 years".
To be honest, it's pointless to make specific forecasts detailed about a time frame that long. Personally, I expect improving productivity, strong profit margins, and healthy earnings growth to push stock prices higher for years to come.
I liked this comment from market strategist Ed Yardeni: "If the productivity growth boom continues through the end of the decade and into the 2030s, as we expect, the S&P 500's average annual return should at least match the 6 to 7% achieved since the early 1990s. It should be more like 11% including reinvested dividends."
Byron's beats
2023 was a fantastic year for stocks. The Vestact model portfolio was up a whopping 52%. At the beginning of 2024 there was a lot of scepticism about whether the market could continue to rise. I remember reading loads of research that showed how bull markets love bull markets. In other words, strength follows strength and the chances were good for another really solid year of returns. Despite seeing all this research, I worried that 2024 would be relatively slow. That has not been the case so far.
The chart below shows how the market performs in the second half of the year when it is already up over 10% for the first 6 months, versus when it is not above 10% after the first 6 months. It turns out that after a 10+% first 6 months, markets tend to go much higher.
If you are sitting on uninvested cash but have been put off buying shares because markets are at all-time highs, you should just take the plunge. Momentum is usually on the side of the fully invested.
Michael's musings
In one of my notes here about 10 years ago, I wrote that; 'If you are young, you really want the stock market to do badly for the next few decades'. The more time that you have to accumulate quality companies, at relatively cheap prices, the better for your retirement nest egg one day.
This only works if you are a long-term investor. If you hop from one investment fad to the next, the mindset mentioned above won't work for you. Ben Carlson wrote an interesting piece on the topic - You should hope for early losses.
In reference to the graph below, Carlson notes: "Both scenarios have the same amount invested ($100k in total) and the same 10-year annualised return (9.1%) but you nearly double your money under the early drawdown scenario."
The key is to be a consistent saver, regardless of what the market is doing. If your plan was to invest monthly, but every time the market had a wobble you sat on the sidelines until 'things looked better', you would have missed out on significant upside. Don't be cute, execute.
Bright's banter
Hermes delivered solid third-quarter results, continuing to stand out in the luxury sector despite the broader slowdown that's hurting many competitors.
Sales rose 11% to EUR3.7 billion, in line with expectations, though growth has eased a bit compared to earlier in the year. Hermes has a wealthier customer base, which has been less affected by the economic slowdown.
Hermes performed well in most regions, with double-digit growth everywhere except China. Japan was a bright spot, with sales jumping 23%, driven by strong local demand and tourists taking advantage of the weaker Yen.
While other luxury names like LVMH (EPA:LVMH) and Kering (EPA:PRTP) are feeling the impact of price hikes and softer demand, Hermes continues to benefit from the high demand for its Birkin and Kelly bags. They've got solid pricing power, and they're even planning price increases for 2025. What an incredible business!
Signing off
Asian markets are mixed this morning. In Japan, the Liberal Democratic Party and its coalition partner lost their parliamentary majority, sparking a dip in the Yen against major currencies.
In local company news, TFG (formerly known as Foschini) has expanded its UK presence by acquiring British fashion and lifestyle brand White Stuff. The retailer, known for its 113 stores and 46 concessions within popular UK spots like John Lewis and Marks & Spencer, is expected to boost TFG's UK turnover by almost 50%. Hopefully, this goes better than most international acquisitions by South African retailers.
US equity futures are solidly in the green in pre-market trade. The Rand is trading at around R17.71 to the US Dollar.
This week, key earnings reports will come from Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Visa (NYSE:V), Mastercard (NYSE:MA), Pfizer (NYSE:PFE), Stryker (NYSE:SYK), Eli Lilly (NYSE:LLY), Amgen (NASDAQ:AMGN), AMD (NASDAQ:AMD), Starbucks (NASDAQ:SBUX), and Uber (NYSE:UBER).
It's a big week. Have a cracker.