Market scorecard
US markets went down again yesterday, marking three straight days of losses. After five months of steady gains, a pullback like this is something we can handle. The S&P 500 has been unusually calm recently, with no daily moves over 1% in either direction for the past 23 sessions - the longest stretch of stability since 2021.
In company news, Tesla shares jumped 12% after-hours after good third-quarter earnings. Their Cybertruck model finally turned a profit after being in production for almost a year. Elsewhere, Kering has cautioned that its annual profit could drop to its lowest level since 2016, as a sharp decline in Chinese demand for luxury goods continues to hurt its largest brand Gucci.
In summary, the JSE All-share was down 0.33%, the S&P 500 fell 0.92%, and the Nasdaq was 1.60% lower.
Our 10c worth
One thing, from Paul
According to the IMF, global public-sector debt is on track to match the size of the world economy in the coming years. In my view, that's too damned high!
Governments around the world love to issue sovereign bonds, and their aggregate value will top $100 trillion by year-end, roughly 93% of global GDP. The US and China are the leading culprits.
The problem is that politicians love giving things away, and as the world's population ages, voters get greedier, demanding fatter old-age pensions and free healthcare. Defence spending is rising, not falling. The "green transition" will have a hefty price tag. Public sector employees also want higher salaries.
Sadly, both US presidential candidates are campaigning on policies that would add to fiscal deficits. The Chinese are also on a spending spree. Here in South Africa, tax revenues don't come close to current spending levels.
I might be unreasonably optimistic, but I do sense that there are more policymakers articulating proposals for fiscal austerity. Now is the perfect time to reduce public spending, with cooling inflation and interest rate cuts.
Byron's beats
The "Magnificent 7" is a nickname given to a group of large US companies that have been leading the current bull market. They are Apple, Google, Amazon, Meta, Nvidia, Tesla and Microsoft. All of these stocks form part of the Vestact model portfolio. We are pleased that we owned these shares way before they were given this trendy label.
According to Eddy Elfenbein, the Magnificent 7 is expected to deliver earnings growth of 18.1% during the current reporting season. That is well ahead of the 6.1% expected from the full range of S&P 500 stocks. And if you strip out the Mag 7, the rest of the 493 stocks are only expected to grow earnings by 0.1%.
We own these stocks because they are well-established businesses that are growing their sales and profits at a very impressive rate. They are not fad stocks without substance. They are leading the market because they are printing cash.
Michael's musings
If you want something done, ensure that people are correctly incentivised. Not so long ago, the world assumed that we had a shortage of lithium and that it would hamstring our move to EVs. As a result, the price of lithium skyrocketed.
Higher demand and prices meant society was incentivised to find new lithium deposits. Over the last two years, there have been numerous large finds, including a huge one in the US. A geological formation in southern Arkansas may have enough lithium to power the whole world's electric vehicles.
The free market did well. We now have enough lithium for humanity's shift to cleaner energy sources, and the price of the metal has dropped back down to its long-term average.
Bright's banter
EssilorLuxottica's third-quarter revenue came in slightly below expectations, driven by weak sunglasses sales in North America and tougher economic conditions in Southeast Asia. Their shares are up 21.6% in 2024 which is impressive as the luxury sector is going through a bit of a meltdown.
Revenue rose 4% to EUR6.4 billion, just shy of the EUR6.5 billion forecast. North America, which makes up about half of the group's sales, grew only 1.6%, weighed down by challenges at Sunglass Hut, though there were some signs of improvement by September.
In the Asia-Pacific region, sales were up 5%, led by strong growth in China, where sales of Stellest prescription lenses surged 40% year-on-year.
EssilorLuxottica also acquired a 5% stake in Nikon and recently completed a $1.5 billion purchase of streetwear label Supreme to attract younger consumers.
The company is also pushing forward with tech investments, including connected glasses made in partnership with Meta. Speculation about Meta's interest in acquiring a minority stake in the company has swirled, though no deal has been announced.
We like this company.
Linkfest, lap it up
Retail entrepreneurs are using EV charging as a loss leader. Studies found that charging stations boost sales of nearby businesses - Shop while you top up with kWh.
Prada has co-designed NASA's new spacesuits. SpaceX's versions still look more practical - Artemis III moon mission suit.
Signing off
Asian markets pulled back amid renewed concerns over China's economic outlook. TSMC stopped shipments to a customer whose chips ended up with Huawei, potentially breaching US sanctions.
In local company news, Famous Brands posted a modest 2% rise in revenue to R4 billion for the six months ending in August, while operating profit remained steady at R371 million. South Africans love eating at restaurants, but not everyone can afford it.
Speaking of affordability, local inflation numbers eased to 3.8% in September, the lowest number we have seen since March 2021. Come on Lesetja, give us a big drop in rates for Christmas!
US equity futures are trading higher in early pre-market trade. The Rand is at R17.80 to the US Dollar.
Keep well.