vestact posted: " Market Scorecard US stocks surged higher on Friday after fresh economic data altered investors' expectations about the possibility of steep interest rate hikes to come. There are hopes that a recession can be averted because oil prices are falling" Vestact - Money with a dash of funny
US stocks surged higher on Friday after fresh economic data altered investors' expectations about the possibility of steep interest rate hikes to come. There are hopes that a recession can be averted because oil prices are falling and the highest inflation in a generation is close to topping out.
Major indexes notched their first weekly gains after three consecutive weeks of losses. The broader S&P 500 index finished the week up 6.4%, the Dow gained 5.4% for the week, while the Nasdaq rallied 7.5%. Very nice!
In company news, FedEx shares surged 7.2%, after reporting a rise in revenue driven by higher shipping rates and fuel surcharges. Elsewhere, cruise-ship operator Carnival saw its share price jump 12% after it said it was on track for a 50% increase in quarterly revenue as compared to the first three months of the year.
On Friday, the JSE All-share closed up 1.61%, the S&P 500 gained 3.06%, and the Nasdaq rallied by another 3.34%.
Our 10c Worth
One Thing, From Paul
Chinese GDP growth averaged around 10% per annum from 1990 to 2015 but has since slowed to around 5%. China's economic expansion has always been underpinned by infrastructure development and housing, and those are running out of steam.
Housing construction and sales account for about one-fifth of the whole economy. The country is now urbanised to roughly the same extent as other developed nations with about 75% of Chinese people living in cities, so demand for new accommodation is slowing.
The authorities in Beijing also seem determined to stamp out speculation in the property sector, so they are restricting access to mortgage funding.
On top of the above, Covid lockdowns are preventing normal consumer behaviour. That puts China's official 2022 GDP growth goal of about 5.5% out of reach. Some economists think getting to 3% will be a struggle.
Slowing GDP growth means that China cannot really establish a meaningful economic lead over the US. That has important implications for where the world is heading geopolitically.
For now, I believe that our portfolios should be made up of US-based multinationals.
Byron's Beats
Just like stocks, economies also don't grow in a straight line. There's a lot of talk at the moment about the chances of a recession in the US. The definition of a recession is two quarters in a row of declining GDP. The word recession seems a little harsh for just six months but I don't make the rules.
After Covid, the market experienced a number of shocks. I wouldn't be surprised to see US GDP pull back a bit. But that doesn't mean stocks will fall further than they already have this year. Remember the stock market looks ahead. Many share prices have declined by over 30%, which already reflects considerable pessimism about their earnings outlook, which may be unfounded.
My point is that you should not sell your portfolio because you saw some gummy analyst predict a recession on TV. He may be right, he may be wrong. The stock market's reaction can be very different.
Michael's Musings
Local property companies are reporting horrible occupancy numbers for their office space portfolios. Many buildings are unlet, and the space that is being renewed is at a steep discount to previous leases. With more people working from home, companies require less space.
I suspect that things will normalise in time. Many managers believe that their employees are less productive at home. My guess is that companies will settle on a hybrid work model where employees will be in the office a few days a week on a rotational basis. This way companies don't require office space for 100% of their staff, and employees still get some work-from-home time.
In the US, due to labour shortages, employees have a bigger say about how much time they will spend at the office. The headquarters of big technology companies are still ghost towns.
If their economy drops into a recession, and layoffs are required, some think that there will be a rush back to the office. The view is that people will want to impress their managers in person, making it harder to be retrenched. Bosses might use the requirement to return to the office to filter out who keeps their job. Usually, a recession is bad for office space, but in our new post-Covid economy, the opposite might happen.
Bright's Banter
Software firm Zendesk closed up 28% on Friday, after the news that it would be acquired by a group of buyout investors including Helman & Friedman LLC and Permira for $10.2 billion or $77.50 per share. This offer was at a 34% premium to Thursday's closing price, although the whole business was worth over $17 billion not so long ago.
According to Bloomberg, the same group of buyout investors had made an offer of $127-$132 per share in February this year, which management said grossly undervalued the company. If this takeover deal goes through, one has to wonder if the management of the company is acting in the shareholders' best interest?
Zendesk was founded in 2007 in a Denmark loft by Mikkel Svane, Alexander Aghassipour, and Morten Primdahl. The firm specialises in helping companies with customer communications. According to their site, the San-Francisco-based company has roughly 5 450 employees and more than 160 000 paid accounts.
Capitalism is essentially a big experiment where startups are trials. Michael Mauboussin and Dan Callahan of Morgan Stanley investigate how new businesses succeed or fail - How capitalism experiments.
Signing Off
Asian markets extended their climb this morning, with the MSCI Asia-Pacific gauge jumping over 1.5%, again boosted by a bounce in Chinese technology firms.
Traders are also monitoring a summit of the Group of Seven (G7) leaders, where nations are committing to indefinite support for Ukraine in its defence against Russia's invasion. Putin will lose this war, he just doesn't know it yet.
US equity futures are flat, after some earlier fluctuations. The Rand is trading around R15.82 to the US Dollar.
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