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Market Scorecard
Well, Mr. Market seems to have a very short attention span these days. Stock prices fell yesterday, reversing the previous session's gains as traders focused on comments from four Fed officials speaking at separate events. They were all coached to reinforce the message that the fight against inflation is not yet won. Come on, it's obvious, they need to be seen to be serious.
In company news, Disney shares surged 5.4% after-hours following fourth-quarter earnings that outpaced estimates. The "house of mouse" unveiled a restructuring plan to slash 7 000 jobs and cut costs by $5.5 billion. Elsewhere, Uber closed up 5.5% after it reported that customers spent more on rides and food delivery despite inflation concerns. Finally, for soccer lovers, Manchester United shares popped 11% after a report that Qatari investors could bid for the British club.
Yesterday, the JSE All-share closed up 0.56%, the S&P 500 dribbled away by 1.1%, and the Nasdaq puked up 1.68%.
Our 10c Worth
Bright's Banter
Last week Thursday, Starbucks reported record revenues for the quarter ending 1 January, but increasing costs took their toll on profits. China, the coffee chain's second-largest market, saw transactions drop 28% as a third of its 6 090 stores were shut down at the peak of the latest Covid lockdowns.
Net income was $855 million, up 5% from the previous year, and sales were $8.71 billion, an 8% increase, but slightly lower than analyst predictions due to currency fluctuations.
Global same-store sales were up 5%, but dropped 29% in China, which was worse than expected. In the US, same-store sales were up 10%, helped by price increases that offset higher costs. Starbucks resumed buying back its shares, purchasing 1.9 million shares worth $191.4 million.
The Seattle-based company said it doesn't see a need to discount its products as customers continue to spend extra on drinks. Management is closely monitoring China's reopening and remains committed to investing there and attracting more customers. The Chinese love coffee, just like the rest of the human race.
The chain is undergoing a CEO transition, incoming CEO Laxman Narasimhan is set to take the helm in April. Starbucks is also changing its rewards program later this month, which is expected to boost profits. Finally, the business is testing a partnership with DoorDash for nationwide delivery in the US by March.
We are happy to have Starbucks in our client portfolios. Coffee is good for you, and a good investment too.
One Thing, From Paul
I read recently that the time devoted to a decision should be determined by that decision's impact on your life.
What's for dinner? Quick decision. Should I run away from a tiger? Even quicker decision! Should I sell my long-term investments because of current news events? Slow decision.
We advise Vestact clients to stick with the stocks that we recommend, even if they don't do well at first. We don't often change our minds. It happens, but not in a rush.
Luke Smith's post is on Humbledollar: Eye of the Tiger.
Here's an excerpt: "Fight or flight is a system that our brain uses to make quick emotional decisions that spur action. Use that for the charging tiger. With an investment decision, think long and hard before making any changes."
Byron's Beats
The market's reaction to Jerome Powell's recent public comments has been very interesting. Since the strong jobs number on Friday, Powell has reiterated that rates still need to go higher and the fight against inflation may take longer than expected. But the bond market has not really budged.
My sense is that the collective does not really believe the Fed. In fact the Fed themselves have stated that they will be data-driven. This means that the CPI reading next week Tuesday will be far more important than the Powell comments.
It's tough to be a central banker. You are required to comment on the future which is as unknown to them as it is to us.
Our view is that inflation will come down relatively quickly this year due to a variety of factors. These include base effects, China getting back to full operation, lower energy prices and more efficiencies among businesses that are facing higher prices. If this is the case, Jerome Powell and his team can change their tune quite quickly.
Michael's Musings
With one tweet, Google managed to wipe about $100 billion off its market cap. On Tuesday night, the company tweeted a promotional video of their AI competitor Bard answering a question on interesting facts about the James Webb Space Telescope. Unfortunately, not all the facts given by Bard were accurate. It incorrectly said that JWST was the first to capture an image of a planet outside of our solar system. Hmm, I wonder why someone at Google didn't fact-check such an important announcement.
Google is one of the industry leaders in AI, having spent a ton of money on research over many years. The foundation of ChatGPT actually comes from a white paper that Google published on the topic in 2017. That tweet on Tuesday night made the market question if Google is still an AI leader.
At the same time as this fumble was happening, Microsoft announced that their search engine Bing will be enhanced with an upgraded version of ChatGPT. The market's reaction was to send Google's share price down 7.7%. Google controls 90% of the search market, making a significant amount of money in the process. The question is how much market share will Microsoft take?
It is worth noting that most people use Chrome as a web browser, which automatically directs traffic to Google. Assuming that Google can get back on the horse quickly, the threat from Microsoft is limited, because if Google still works, then there is no need to look elsewhere. One market commentator noted that having some real competition might be good for Google's long-term health.
Given the effort that Google has already put into AI research, you have to back them to fix these problems and remain an industry leader.
Linkfest, Lap It Up
Intel is famous for passing up the opportunity to make CPUs for the iPhone. The industry disrupter ended up being disrupted themselves - Intel is on the ropes.
Do you have what it takes to start a business?. Less than 2% of the world's population end up as successful entrepreneurs - Ten things to know about founding your own company.
Signing Off
Chinese markets are looking good this morning, with both Hong Kong and Shanghai up by more than one percent. Unlike their balloon, those markets are flying high. The major indices in Tokyo and Seoul fell.
Some key earnings out today before the market open are AbbVie, CloudFlare, Unilever, Pepsico, AstraZeneca and Philip Morris. After the close on Wall Street PayPal results will hit the wires. We are a little worried about that one, let's hope they are good.
US equity futures are climbing in early trade. The Rand is trading at around R17.73 to the US Dollar.
Later today South Africa's president will make a speech about the state of the nation. Will you watch? Most of us are pretty browned off about his useless administration.
All the best for the day ahead, take care.
Sent to you by Team Vestact.