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Market Scorecard
US markets moved higher again on Friday and both major indices posted impressive gains for the week. The S&P 500 was up 2.5% while the Nasdaq jumped 4.3% over the five days. Technology shares have been the main winners. The Nasdaq Composite had its best week since August, and its fourth straight weekly advance. Meta, Nvidia and Tesla climbed 9%, 13%, and 31%, respectively, for the week.
A report on Friday showed the Fed's preferred inflation measure eased in December to the slowest annual pace in over a year. This was music to our ears.
In company news, American Express shares rose 11% after the credit card company reported falling profits but boosted its quarterly dividend. Elsewhere, Chevron closed down 4.4% even though the oil giant reported record earnings, buoyed by high oil prices.
On Friday, the JSE All-share closed up 0.35%, the S&P 500 edged up by 0.25%, and the Nasdaq was a solid 0.95% higher.
Our 10c Worth
One Thing, From Paul
Fifteen years ago, we were first alerted to the proposed listing of Visa on the New York Stock Exchange. We were immediately interested in owning the shares for clients.
Prior to that time, Visa's electronic payments network was owned by the banks that used their services. As you know, Visa is not a credit provider or a card issuer. Visa owns the network that authorises and switches payments initiated at the point of sale, for a fee.
Back then, in 2007, Visa was present in 170 countries and was processing 117 million transactions per day. Now it's active in 200 countries; operates 3.6 billion cards; is accepted at 70 million merchant locations; processes 242 billion transactions a year, representing $11.7 trillion; and generates over $40 billion in revenue on which it earns one of the highest margins in the S&P 500.
The current CEO Al Kelly is being replaced by Ryan McInerney (pictured below), but we expect the handover to proceed smoothly. There are several projects in hand to expand the services they provide, wherever money is being moved around.
Visa has fully overcome the setbacks of the Covid pandemic. Cross-border volumes are now at 132% the level they were for the last three months of 2019. People are traveling and spending again.
Right from the start, Visa has been a terrific investment. It will go from strength to strength in the years ahead. You can't own too many of these shares.
Byron's Beats
ChatGPT is all the rage at the moment. Naturally we get asked how to invest in this exciting new industry. Microsoft has bought a big chunk in OpenAI, who owns ChatGPT. But Microsoft is a huge business and it takes a lot to move the needle.
Nvidia is probably one of the best bets. Their sophisticated chips are widely used to power artificial intelligence applications. According to Bloomberg, Citigroup analysts predict that sales due to ChatGPT-related servers could add $11 billion in sales for Nvidia over the next 12 months.
The share price agrees, it's up 40% just this month and has nearly doubled since the lows of October last year, although it still has a long way to go to get back to 2021 levels. We are used to Nvidia going through these wild swings but believe that it will be well worth the ride.
Michael's Musings
To push back on Paul's tweet below, I thought I would ask ChatGPT to write about why Microsoft is a good investment. Here is what the AI had to say:
"Microsoft is a good investment for several reasons. Firstly, the company has a strong track record of financial performance and is one of the most profitable companies in the world. This is due to its diverse range of products and services, including the Windows operating system, Office suite, and Azure cloud computing platform. Additionally, Microsoft has a large and loyal customer base, which helps to ensure a steady stream of revenue.
Another reason to consider investing in Microsoft is its focus on innovation and technology. The company is at the forefront of many cutting-edge technologies, such as artificial intelligence and the internet of things, and is well-positioned to benefit from future growth in these areas.
Furthermore, Microsoft has a well-established ecosystem of partners and developers, which helps to drive adoption of its products and services. This ecosystem also creates a network effect, in which the value of the platform increases as more people use it.
Finally, Microsoft has a strong balance sheet and generates significant cash flow, which it uses to return value to shareholders through dividends and share buybacks. This makes it a relatively low-risk investment."
Bright's Banter
LVMH reported its full-year numbers last week, delivering a second straight year of record sales and profits driven by its main brands Louis Vuitton and Dior. The recent luxury boom has favoured bigger brands.
The Arnault-controlled conglomerate said Louis Vuitton crossed the EUR 20 billion revenue mark last year and had doubled in size over four years. Does this mean that Louis Vuitton may not be as exclusive as it used to be, or maybe more rich people are now recognising the brand?
Annual sales were up 23% to EUR 79.2 billion, while net profit grew 17% to EUR 14 billion. These are exceptional numbers, considering factory and store shutdowns due to Covid lockdowns in China (its second-largest market) hindered Southeast Asian sales.
The fashion and leather goods division, which houses Louis Vuitton and Dior, reported sales of EUR 38.6 billion and organic growth of 20%. This division now contributes just over 48% of total sales.
UBS estimates that the luxury goods market will grow sales by 9% in 2023 after a 16% expansion last year. This is one of the many reasons I remain bullish on the sector, the other is that China is back in business and households have an estimated $1.3 trillion in savings from the lockdowns. That money has to go somewhere.
Linkfest, Lap It Up
Annie Duke wrote a blog about Ajinomoto. This company started out selling MSG seasoning and today they've pivoted to being the leading manufacturer of semiconductor insulation - Why tinkering is good for business.
Researchers have found a way to give robots the sense of touch. The technology works so well that the 'skin' is able to determine the material type - Artificial skin can detect nearby objects without even touching them.
Signing Off
Asian markets are mixed this morning, in choppy trading conditions. Markets in Hong Kong, Japan, and South Korea fell, while mainland China traded higher, putting it on course to close more than 20% above its October lows.
US equity futures are lower, perhaps traders are wondering if the recent rally can be sustained. This week is the monster we have been waiting for: the Fed's interest rate decision and the earnings results from the biggest tech companies. We are ready!
The Rand is trading at around R17.20 to the US Dollar.
Have an industrious week.
Sent to you by Team Vestact.