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Market Scorecard
There is a saying among traders, "buy the rumour, sell the fact". It means that the market tends to hype things and then becomes disappointed when the reality is announced. This seems to have happened yesterday with the lead up to Biden's stimulus package announcement. The US market reached a new all-time high, but after Biden's proposal, the market slipped a bit and finished the day in the red.
Maybe traders were hoping for more than $1.9 trillion in extra spending?! Maybe it is a worry that all this extra money would come with a bunch of strings attached? As Bloomberg reported this morning, the focus of the market shifts from the proposed stimulus plan to what the market thinks can get through Congress. This is all short term noise though. Keep focused on the plan of regularly adding to your investments, to build long term wealth.
Yesterday the JSE All-share closed up 0.65%, the S&P 500 closed down 0.38%, and the Nasdaq closed down 0.12%.
Byron's Beats
We have been rather quiet about the Johnson & Johnson (NYSE:JNJ) vaccine. Our advice to clients is not to chase the vaccine as an investment theme. That tactic is most often a big guessing game and normally ends in tears. Fortunately for us, one of the global frontrunners happens to be a J&J product.
According to recent reports the company is on track to roll out the vaccine by March. This is later than expected due to production and approval delays. Their goal is to deliver 1 billion vaccines by the end of the year.
Goldman Sachs (NYSE:GS) estimate this will increase sales by $1 billion this year and then $2 billion per year for the next 5 years. J&J have committed to selling the vaccine as a non for profit until the emergency pandemic period is over. Well done team Johnson & Johnson!
J&J's annual revenues sit at around $90 billion. Although this is good for the company, it is not a game changer by a long shot. The good news for the world is that only one shot is needed and the storage requirements are less complicated. In SA we also have an Aspen (JO:APNJ) production facility ready and waiting to make these locally. March couldn't come sooner.
Michael's Musings
It is fascinating to see how global financial markets fit together. It is a complicated system, constantly trying to balance all the competing forces. If you drill down to the core, it is one giant supply and demand equation. As demand in one area of the market increases, it is followed by price increases, which leads to supply increases and normality returns.
One trend happening at the moment is the hunt for yield by international investors. Central banks have interest rates at record low levels, even negative in some circumstances. Sitting on cash is just not an option anymore! The hunt for any sort of cashflow returns has meant great swaths of money finding its way into the stock market. More money, means more demand, which means higher stock prices and then lower dividend yields.
This Eddy Elfenbein piece has a look at how the stock market generally has around a 2% dividend yield - The Dividend Indicator May No Longer Work. As Eddy points out, the stock market started to decouple from that 2% yield in around 2019.
We can't look at things in isolation. Low interest rates, mean low dividend yields and high stock prices. So by historical standards, stocks are expensive but there is a very good reason for them being expensive - interest rates are at historically low levels.
Bright's Banter
We know that 2020 was a tough year all-round and many families were panicked about where to find the next paycheque. For those that had nothing to begin with, matters got worse.
It brings joy to my heart to know that some people went out of their way to give to those who needed it the most. If you were one of those people, I tip my hat to you because the world could do with more people like you and less with people like the orange man, but I digress.
Our friends at Statista shared an infographic of some of the biggest charitable donations of 2020. However, there seems to be one massive omission of around $6 billion (around 10% of her net worth at the time). Mackenzie Scott gave away billions between June 2020 and the end of December 2020.
Ms Scott said that "this pandemic has been a wrecking ball in the lives of Americans already struggling." She wanted to help people who were struggling because of the pandemic and her net worth happened to shoot up by $23.6 billion to $60.1 billion. She picked over 384 charities to donate to which spread across 6 500 organisations. I hope Jeff Bezos is taking notes!
Infographic courtesy of: Statista
Signing Off
Blackrock (NYSE:BLK) reported better than expected numbers yesterday, setting things up perfectly for the big banks to really kick off earnings season today. The Rand has continued to claw back last weeks losses and is now trading at $/R15.09. For many, this was their first week back at work. Enjoy the weekend!
