Market scorecard
US markets were under pressure yesterday. The main reason was that ASML, Europe's top tech company that makes cutting-edge chipmaking machines, put out a gloomy forecast. Analysts also noted that the US plans to further limit sales of advanced AI chips to certain countries. This fuelled a selloff in the semiconductor sector, with market-leader Nvidia down 4.5%.
In company news, Goldman Sachs was originally up over 3%, but closed flat, after reporting a 45% surge in third-quarter profit, thanks to a surprise boost in equity trading and a strong rebound in its investment banking division. Elsewhere, oil stocks fell on news of Israel's targeting of Iranian military assets rather than crude production facilities. Exxon Mobil ended 3.0% lower and Chevron dropped 2.7%. As we like to say in South Africa, shame.
In summary, the JSE All-share was down 0.52%, the S&P 500 fell 0.76%, and the Nasdaq was 1.01% lower.
Our 10c worth
One thing, from Paul
If you are an investor in big-cap global equities, should you pay more attention to company profit margins and their dynamics, or to the broader sectoral and macro-economic contexts in which they operate?
A recent study by economists at the Federal Reserve showed that company-specific analysts can improve their earnings forecasts by synchronising them with macro forecasts.
Even the best company will have a hard time growing its earnings when the economy is in recession - think of some of our great local companies who have struggled. Meanwhile, even poorly run outfits can turn a profit in a booming economy. As they say, in a hurricane, even turkeys can fly.
You need to look at all the factors and scenarios. Here are a few stock-specific examples. It's generally a good time for companies with products in the aerospace and defence industry, but Boeing is sinking like a stone. All companies with weight-loss drugs on sale are currently having a great time. Finally, JP Morgan is doing well in a strong US economy, despite not really improving its actual business operations.
Byron's beats
Being a good professional investor requires a variety of attributes. The obvious ones, like attention to detail and an ability to work well with numbers are very important. But you need to have more than just a high IQ to succeed in this industry.
One of the most underrated attributes, in my opinion, is a good imagination. Essentially, investors are trying to predict the future. If you cannot envision how the world might look in a few years time, then your ability to make investment decisions will be hampered. I have seen some of the smartest people I know fail to make concrete decisions and they usually lose out.
If you are passionate about a career in investing but you are not a maths genius, don't be disheartened. There is far more to the art of investing than just numbers.
Michael's musings
Did you watch 'The Big Short' about the 2008 financial crisis? It was a great movie with an amazing cast and centred on a few people who predicted the property market collapse, and made billions. Michael Burry was one of those people.
The financial media loves to quote Burry because of his contrarian views. The headline generally goes something like 'Burry, who correctly called the 2008 crash, now forecasts a new imminent collapse'. A headline like that gets a lot of clicks.
In 2022, the Nasdaq fell 33%, and fear levels were high. Then in January 2023 the market had a nice bounce, but things still felt shaky. At that point, Burry made another bearish call - see his tweet below. Unfortunately, many people listened.
At the time, several non-financial friends sent me screenshots of his tweet. We even had a few clients delay investing new money because of Burry's message.
Humanity naturally progresses, which means stock prices move higher too. Swimming against that current is incredibly difficult and usually ends in failure. Rather ignore the bearish pundits, and go with the flow.
Bright's banter
Google has made a groundbreaking deal with Kairos Power to purchase energy from small modular nuclear reactors (SMRs). Google has a rapidly growing electricity demand, especially for AI-related operations.
The plan is to bring Kairos' first reactor online by 2030 and more by 2035. The deal will cover 500 megawatts of power from six or seven reactors, and it highlights Google's commitment to clean, reliable, around-the-clock energy.
Tech companies are increasingly turning to nuclear power as AI demands surge. For instance, Amazon and Microsoft have recently struck nuclear energy deals as well. US data center power usage is expected to triple by 2030.
SMRs are one potential solution for cleaner energy, but critics worry about the high costs and long-term nuclear waste issues. Google's partnership with Kairos is meant to accelerate SMR development by committing to a long-term order book rather than individual purchases.
Linkfest, lap it up
TikTok is being sued in the US. Fourteen attorney generals allege that the social media company harms children's mental health - The app is really fun to use.
Don't force your kids to become social media stars. A popular YouTuber's mom was accused of child abuse and exploitation - She settled in court for $1.85 million.
Signing off
Asian markets are mostly down this morning, with the MSCI Asia Pacific Index dropping for the third straight session. Benchmarks in Sydney, Tokyo, and Seoul are all in negative territory.
In local company news, Karooooo (yes, with 5 'o's, what a dumb name) had a great half-year ending in September, with operating profits climbing 28% to R602 million. Their main business is Cartrack with over 2.13 million subscribers. The reopening of the new Rosebank office, without windows, seems to be paying off.
US equity futures edged higher pre-market. The Rand is trading at around R17.61 to the US Dollar.
It's a little damp in Johannesburg this morning, but things are looking up.