U.S. stocks fall as 10-year yield hits highest since 2007, oil prices resume surge
Market Scorecard
Sad to say, US markets had their worst session of the year yesterday, dragged down by the usual concerns that the Fed may keep interest rates higher for longer. Mixed profit forecasts from large US retailers added to the negative tone.
In company news, Walmart (NYSE:WMT) rose 0.6% after reporting strong sales of bulk-sized groceries. You can picture the scenes at their megastores in middle-America. Unfortunately, Home Depot (NYSE:HD) was not so lucky, falling by 7.1% after the home-improvement retailer warned its profits will sag as it spends an extra $1 billion this year on wage increases for hourly employees.
At the end of the day, the JSE All-share closed down 1.28%, the S&P 500 dropped 2.00%, and the Nasdaq was 2.50% lower. Oof!
One Thing, From Paul
Vestact has 1 200 clients, all of whom are good savers. They know that to build wealth you have to set money aside, delay the gratification of spending it now, and as Morgan Housel says, "have a gap between your ego and your income".
If your lifestyle creeps faster than your salary rises, you'll never be satisfied with your savings. You have to live within your means. Having said that, you probably shouldn't scrimp like a church mouse and save more than is sustainable. Maintain a balance. Take a long-term view, and be patient.
The best time to add to your portfolio is now, but waiting a few months is also ok. Don't worry about missing out on a market rally, they come around often. Only invest the funds that you know you won't need back in the short term.
Don't worry too much about the news headlines. Housel again: "A big takeaway from economic history is that the past wasn't as good as you remember, the present isn't as bad as you think, and the future will be better than you anticipate".
Byron's Beats
Remember when Tesla's (NASDAQ:TSLA) share price was flying and sceptics kept comparing its market cap to those of the other car manufacturers? They kept pointing out that it made no sense that Tesla was more valuable than the likes of Ford (NYSE:F) and GM (NYSE:GM).
The two graphs below tells us why the market had it right. Despite having much lower sales (first graph), Tesla is already more profitable than Ford and GM (bottom graph). Tesla factories are new and designed to build EVs. There is no legacy rubbish to deal with. Its margins are far higher than the competition.
Every Tesla sold is worth a lot more to shareholders than every Ford or GM. Now they must ramp up that sales number.
Michael's Musings
The ownership of land is a very emotive topic in South Africa, because of our woeful history where a large part of the population couldn't own property in most areas. Simon Brown wrote an article which has sparked some fierce debates. It's been interesting to see all the arguments made, and the back and forth on social media.
Simon (we can use his first name because he is well known in the Vestact office) says the following: "Owning your own home is expensive and restrictive and overall a bad idea. If you are going to buy a house, understand it's about emotional security not because it's a great investment".
I mostly agree with Simon. I own my house because I don't want to be beholden to a landlord, and I've enjoyed renovating it to the tastes of my wife and I. We plan to live in our current house for at least the next 20 years, assuming Joburg isn't swallowed up by a pothole.
Simon's point is that renting is cheaper than owning, so you could take the money you save and invest it. At the end of the term, you'll probably have a portfolio worth more than a house. There are many, many assumptions in the model, including what the stock market and property market will return over the period. The model also only makes sense when comparing bond repayments to rental costs.
At year 20, you could theoretically sell part of your equity portfolio, buy a house for cash, and still have money left over. Running my own numbers, if you move more than twice in 20 years, renting is probably the better financial decision.
Here is the article - Why renting, not buying, a home is best.
Bright's Banter
In recent years, Walmart has been growing its e-commerce and other new business lines to keep up with Amazon (NASDAQ:AMZN). Profit margins have suffered, but those efforts are really starting to pay off now.
Walmart's recent sales and earnings report was a knockout, with US comparable-store sales up 8.3% and net income up 76%. Inflation has actually worked in its favour. More high-income consumers are shopping at Walmart, and many people are opting for the store's private-label brand products, which are cheaper for customers but more profitable for Walmart.
Walmart's e-commerce sales have also been growing, while Amazon's online sales actually declined over a comparable period. Walmart's global advertising business is also gaining ground, and the company's Walmart+ membership is increasing.
Overall, Walmart's high-margin businesses are now getting large enough to make a difference. The company also has some new initiatives in the works, like a partnership with Salesforce (NYSE:CRM) and a new e-commerce site for businesses.
Investors seem to be taking notice, with Walmart's stock rising slightly after the earnings report. While Walmart's online and advertising businesses are still relatively small compared to Amazon's, they could be enough to make Amazon a little nervous.
Signing Off
Asian markets are looking sloppy again this morning. Shares in Japan, mainland China, South Korea, Hong Kong and India all sagged.
At 14:00 today South Africa's government budget will be revealed in Parliament. Unlike the state of the nation address, where the big chief gets to make up fairy tales, points raised in this speech by the Finance Minister will have a real impact on you, particularly changes to the tax code. Our national finances are not looking too rosy, and too much of our taxes are eaten up by ineffective government employees.
US equity futures are up marginally, ah that's good. This evening, Vestact-recommended chipmaker Nvidia (NASDAQ:NVDA) releases their results, which could result in some after-hours share price volatility.
The Rand is trading at around R18.25 to the greenback. Congrats to the Protea Woman for reaching the semi-finals of the T20 Cricket World Cup. They are the first Protea side (men or women) to reach the semi-finals of an ICC event hosted in South Africa.
Keep calm, and work hard.
