Market scorecard
US markets made a strong comeback on the last day of July, closing out a volatile month on a high note. All three major indices opened significantly higher and maintained their gains after the Fed decided to keep interest rates steady. Fed Chair Jerome Powell hinted that a rate cut could be on the table in September if inflation trends continue to improve. For the month, the S&P 500 gained 1.1%, while the tech-heavy Nasdaq saw a slight dip of 0.8%.
In company news, Meta Platforms jumped 7.2% in after-hours trading after the social media giant reported better-than-expected sales. Arm Holdings, however, fell 10.5% as the chipmaker decided not to raise its annual forecast, sparking concerns about its growth potential. Meanwhile, Nvidia surged 12.8% following a bullish recommendation from JP Morgan analysts.
At the close, the JSE All-share closed up 1.93%, the S&P 500 added 1.58%, and the Nasdaq jumped 2.64% higher. What a strong rebound!
Our 10c worth
Michael's musings
On Tuesday night, Microsoft released a strong set of results, beating analyst estimates for revenue and profit. Frustratingly, on a day when the Nasdaq closed firmly higher, Microsoft fell 1.1%. Revenue for the quarter came in at $65 billion, up 15% from a year ago, earnings per share rose 10% to $2.95, and the dividend rose 10% too. Next year, Microsoft expects to grow profits by 17%, which is impressive given its already large profit base.
The negative share price reaction was due to slightly lower guidance and because Azure grew at only 30%, instead of the forecast 31%. Given the size of Azure, and the massive forecast growth in years to come, a small miss now has an exponential impact on future profits.
Spending on AI resulted in a 78% surge in capital expenditure to $19 billion for the quarter - good news if you are an Nvidia shareholder. All that capex is well covered by cash flows, which came in at $37 billion for the 3 months.
Microsoft is a mega profit-making machine that is central to many business operations. As a result, you have to pay a premium to own the shares, currently a forward P/E of 31. With continued solid double-digit profit growth, the share price will continue to move higher.
One thing, from Paul
The Fed did not cut rates last night. I'm disappointed, because I'm always fully invested. I want stocks to go up, I don't care about interest earned on my tiny cash balance.
Why should US interest rates be above 5% (a 23-year high) when inflation is close to 2%? It's madness!
Today's outcome was not a surprise. Jay Powell's Fed does not believe in market shocks. If they were going to cut, they would have signalled it weeks ago in speeches, and via editorials by friendly journalists at the Wall Street Journal.
Attention now shifts to the next Fed announcement on September 18th. By then, the calls for action will be even louder. The US economy is fine, but slowing noticeably. The transitory spike in inflation is behind us. The Fed has been on hold for the last 12 months. Come on Jay, enough already.
Byron's beats
I read a column from well-known financial blogger Joel Ross last night and found the following line quite amusing. "The problem these days is nothing is predictable anymore." I raised an eyebrow because I could not pinpoint a moment in time when the future was predictable.
Do you really believe that the world is more chaotic now than it has been in the past? World Wars, the Cold War, Apartheid, Vietnam, oil shortages, 9/11, US housing crash, EU financial collapse, Brexit, natural disasters, Covid and so much more in between.
I am sorry to say but the world has always been chaotic. It might be more in your face these days due to social media and the internet. I can assure you that chaos was rife 30 years ago, despite it not being on your timeline. The future has never been easily predictable Joel.
Bright's banter
Lineage, the world's largest cold storage operator, made waves last week with a $4.4 billion public listing, marking the biggest IPO of 2024 and valuing the company at over $18 billion. This makes it the largest public offering since chip designer Arm's $4.8 billion debut last September.
The company was founded in 2008 by two former Morgan Stanley bankers aiming to modernise an industry traditionally run by smaller, family-owned businesses.
Lineage has grown into a global powerhouse. It's now the largest temperature-controlled warehouse REIT, with 480 locations across North America, Europe, and Asia, and controls nearly a third of the US temperature-controlled warehouse space after 116 acquisitions.
Their rise coincides with surging demand for cold storage, as sales of frozen foods in the US soared to $74 billion in 2023 - a 33% increase from 2019.
Efficient cold storage is crucial not just for profitability but also for sustainability, as it helps reduce the $600 billion worth of food lost yearly before it reaches consumers, which accounts for 8% of global emissions and significantly contributes to climate change.
Linkfest, lap it up
The summer games have returned to Paris after a century. The spectacle has changed a lot in the intervening years - The Olympics 100 years later.
AI on Apple devices has arrived. This new functionality has the potential to start a new era for Apple products - Apple releases iOS 18.1 developer beta with the first 'Apple Intelligence' iPhone features.
Signing off
Asian markets are mixed this morning. Equity benchmarks rose in India, South Korea, and Taiwan, while Hong Kong, Japan, and mainland China fell.
In local company news, a trading update from Woolies showed a 6.2% increase in sales, but earnings are expected to drop by up to 19%. Elsewhere, MTN Nigeria reported a R5.7 billion loss as the Naira continued to tank and rising inflation added to its woes.
US equity futures edged higher pre-market. The Rand is trading at around R18.30 to the US Dollar.
Today, is another big day for earnings releases, with Apple, Amazon, Intel, and Ferrari all reporting.
It is a new month, make it count.