Spot gold up 1% amid muted dollar, elevated oil prices, and a slide in U.S. bonds
Market Scorecard
Last week US markets were quiet. The S&P500 only moved 0.5% lower. The week ahead might be a bit spicier when it comes to market moves. It is the last full trading week until the US election, Covid cases are getting worse in Europe, company earnings are flying in, and the Chinese government are meeting to set their goals for the next 5 years. Each of those factors can move the market in the short term.
These are all complex factors and shows how difficult it is to make short term forecasts of market moves. What happens if you correctly predict the US election but have the incorrect forecast when it comes to EU Covid cases and US company earnings? This is why Vestact doesn't try to predict the short term market moves. It is simply too difficult and there are far too many factors to consider. Rather pick big, long term trends.
On Friday the JSE All-share closed up 0.99%, the S&P 500 closed up 0.34%, and the Nasdaq closed up 0.37%.
One Thing, From Paul
Technology companies now have the greatest share of the stock market ever, well ahead of their influence in the dot-com era. Tech stocks now account for nearly 40% of the S&P 500, above the 37% reached in 1999.
Apple (NASDAQ:AAPL), which earlier this year became the first US company to hit a $2 trillion market capitalisation, accounts for more than 7% of the index on its own.
In case you think that I'm pointing this out because it worries me, let me set the record straight - it does not worry me at all. It's merely a reflection of the world we live in now, and how the economy is evolving. It's a factor of how money is made and value is added. What we call 'technology' is really a very wide range of businesses, from companies that manufacture phones to others that operate social-media platforms, or deliver parcels.
Trends like remote work and cloud computing are driving growth at these companies, helping tech companies expand their businesses when many are struggling. These are the stocks that we need to own now. Onwards and upwards!
Byron's Beats
Video conferencing has boomed this year. That needs no explanation. As a Vestact client, you may have experienced Zoom (NASDAQ:ZM) fomo as the share price of that company exploded. You will be happy to know that the 290 Vestact clients who own Microsoft (NASDAQ:MSFT) are well exposed in this department.
Remember that Microsoft made its name by offering digitised office products. Word, Excel and Powerpoint revolutionised the way we have worked over the last three decades. Office 365 has over 200 million subscribers today and over 1 billion people use at least one Office product monthly according to a brief Google (NASDAQ:GOOGL) search.
That is why we believe Microsoft Teams will dominate video calls in the work place. Daily Teams users went from 32 million in 2019 to 75 million in April this year. I wouldn't be surprised to see that number crest 100 million by the end of the year.
The company with unlimited resources and a massive in-house cloud service (Azure) is now working hard at making Teams the best service out there. According to a recent update Microsoft will use AI technology to reduce background noise in meetings. The AI will pick up what sound is important and what is not.
This Forbes article looks at Teams versus Zoom. I'm sure there will be room for multiple players but I back Teams to be the dominant player when the market matures.
Michael's Musings
The price of Bitcoin is above $13 000 again - taking it back to where it was in the middle of last year. Team Vestact sees a direct correlation between the price of BT and the number of emails that we receive about the currency. Who doesn't want to own something that sees it price increasing? The most recent rally is due to Paypal allowing their users to transact using BT and other digital currencies.
The question that I keep asking is, what makes BT valuable? There are a few answers, but none of them I find convincing. Something like the USD or the EUR is valuable because there are things that you can only buy using those currencies. If you go onto Amazon (NASDAQ:AMZN), their products are priced in USD. If you want to buy something, you need to first convert your Rands into USD, and then only buy your desired product. In that situation, you are selling Rands and buying USD, which makes the USD more valuable. There is nothing that is exclusively priced in BT. Well nothing legal. Paying off hackers is done via BT, so maybe that counts?
Sometimes BT is compared to gold and is even referred to as digital gold. If you decide that you don't like your Kruger Rand though, you can melt it down and turn it into jewellery. In the US, large quantities of gold goes into electronics too. So gold has some very tangible applications, which makes it valuable.
BT is a very inefficient way to transact. As such, I don't see it becoming a transactional currency. Even if it was a transactional currency, that doesn't give it anymore value though. As pointed out above, the value is derived from what is priced in the currency. I do not doubt that digital currencies will be used in global banking systems in the near future. If you have any experience using the SWIFT system to make international transfers, you will know how antiquated, slow and expensive the system is. Something like Facebook (NASDAQ:FB) Libra looks to disrupt that industry. In this case though, that system will be profitable for Facebook and their partners, not for individual coin holders.
At the end of the day, BT is valuable because other people think it is valuable too. That is great as long as many other people share your views. It is a problem when those views change because there is no underlying intrinsic value to fall back on. As such, Vestact has decided to simply take an observers seat to BT.
Bright's Banter
Cybersecurity software provider McAfee (NASDAQ:MCFE) is the latest company to file for IPO. McAfee is said to have raised $740 million at $20 a share valuing the business at over $8.6 billion. Not bad for a company that was valued at $2.2 billion in 2016 when private equity business TPG bought a 51% stake from Intel (NASDAQ:INTC).
Today, McAfee's biggest shareholders include Intel, TPG, Singapore's sovereign wealth fund GIC Pte and another private equity firm called Thoma Bravo. According to the IPO filing, McAfee made $1.4 billion in revenues for the first half of 2020 and net income of $31 million in the same period.
McAfee was founded in 1987 by a crazy guy who goes by the name John McAfee. John sold the business to Intel back in the year 2010 and he's lived a rather colourful life ever since. In 2012 he was a person of interest in a murder case in Belize, but he was never charged of any crime.
Last year, he was detained in the Dominican Republic for entering the country with a stash of firearms and ammunition. The US Securities and Exchange Commission also sued McAfee for promoting the sale of cryptocurrencies without any disclosure that he was paid to promote these things. This month he's been arrested on tax-evasion charges for allegedly failing to report that income.
Signing Off
Earnings season gets really exciting in the week ahead. The companies due to report include - Microsoft (NASDAQ:MSFT), Amgen (NASDAQ:AMGN), Visa (NYSE:V), Apple(NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), Facebook (NASDAQ:FB), Starbucks (NASDAQ:SBUX), Stryker (NYSE:SYK) and Illumina (NASDAQ:ILMN). Phew! Its going to be a busy week! Asian markets are lower this morning. The Rand is looking okay at $/R 16.26.
