vestact posted: " Market Scorecard US markets remained subdued yesterday, even though new data showed that inflation increased at a slower pace. This is a data point that investors are watching closely, because it will inform the Fed's next move. The Fed has argued"
US markets remained subdued yesterday, even though new data showed that inflation increased at a slower pace. This is a data point that investors are watching closely, because it will inform the Fed's next move. The Fed has argued that the current spike in inflation is temporary, and caused by lockdown-related supply bottlenecks.
For those keeping score, the seasonally adjusted US consumer price index increased by 0.3% in August from July, which was lower than the 0.4% economists expected.
In company news, Elon Musk's SpaceX is sending four civilians into orbit for several days, part of a plan to cement themselves as the leading space company. All the best Elon! Elsewhere, casino operators saw their shares tumble after the Macau government revealed plans to impose stricter regulations. Wynn Resorts and Las Vegas Sands fell 10.8% and 9.7%, respectively.
At the end of the day, the JSE All-share was down 0.54%, the S&P 500 was down 0.57%, and the Nasdaq was down 0.45%.
Our 10c Worth
One Thing, From Paul
I see that Norway has just elected a new government, which the leftist Labour Party will head up. Politics in Norway sounds very genteel. The new Prime Minister, Jonas Gahr Store, publicly thanked and praised his predecessor, conservative Erna Solberg, the PM for the last eight years.
Environmental issues are hotly debated in Norway. But as writers from the Morning Brew put it today, when it comes to climate change, Norway is like a vegan with a beef farm. It's one of the most environmentally progressive countries in the world, but oil extraction is its most important industry.
The sector employs more than 5% of Norway's workforce and accounts for more than 40% of its exports. Norway has also built up a $1.4 trillion sovereign wealth fund, the world's largest, fed by revenue royalties on fossil fuel exploitation. Nice work, if you can get it!
Byron's Beats
Stocks and bonds compete for investors' capital. That's why when bond yields are low, stock prices move higher. When inflation starts rising, central banks are forced to raise interest rates which make bonds more attractive. Technically, share prices should then drop.
This why market participants watch inflation so closely. Yesterday's inflation numbers in the US came in lower than expected. It would seem that a downward trend is now established from the peak reached in June this year. See the image below. The Fed is confident that the recent uptick in inflation was transitory, and due to Covid bottlenecks.
I tend to agree, but I believe that inflation will level out higher than it was in 2019. Commodity prices are soaring (great for the SA economy) and there is a lot of pent up demand from 18 months of lockdowns.
Anyway, these things are interesting to watch, but won't change our market view. Quality companies can withstand these cycles and continue to thrive. We will continue to hold stocks regardless of interest rates, inflation and the concomitant actions taken by the Fed.
Michael's Musings
Have you heard of flexitarians before? That's not someone who spends too much time in front of a gym mirror, the term refers to people who want to eat less meat but not become fully vegan or vegetarian. So if you have done a 'meat free Monday' recently, you can call yourself a flexitarian.
This group of people is actually driving demand for alternative meat products because only about 6% of the US population is vegan, which is not enough to support the industry on its own. As it stands, about 5% of US restaurants now serve meat alternative products, with 71% of Americans saying that they have tried them at least once. In South Africa, I'm seeing more shops and restaurants serving Beyond Meat products but they are very expensive; roughly double the price of their normal meat counterpart.
From an environmental perspective, I think the alternative meat industry is the future of food. In years to come, a steak will be extremely costly because massive carbon taxes will be included in the price. To get exposure to the industry I have wet my little toe, buying a position in Beyond Meat but with just 1% of my portfolio. The company has a market cap of $7 billion on sales of only $500 million, showing that the market has big expectations for them. So far it hasn't worked out well for me, see the graph below, but this is a bet for the next decade.
Bright's Banter
Apple has done a phenomenal job, creating new products and services to diversify away from being a one-trick pony. The iPhone remains its major contributor to both revenues and profits but it's services business is growing fast and minted another new revenue record in the most recent set of results.
The good news is that all their hard work is starting to bear fruit, as Apple posted profits of more than $10 billion for 13 consecutive quarters, a feat only 25 companies in the Fortune 500 list managed to achieve in 2019. Apple is a powerhouse!
The infographic below shows the product evolution of Apple and revenue contribution by those segments since the launch of the iPod in 2001.
Most Asian markets are down today except South Korea. Chinese data out a few hours ago indicated a sharp slowdown in retail sales growth, as new coronavirus outbreaks hit travel and consumer spending.
US futures are turning higher in early trade. The Rand has weakened to around R14.32 to the US dollar. Best of luck!
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