Trading update : 12 December 2024

The US market seems unstoppable at the moment, with the S&P 500 hitting its 56^th record close of the year and jobs data beating expectations. In contrast, the UK economy had its growth forecasts revised down and the EU remains in the final throws in its battle against inflation.

Wall Street short-sellers throw in the towel

Short-sellers are capitulating as the S&P 500 Index (VOO-NASQ) keeps hitting record highs and is set for its best year since 2021, according to Citigroup Inc. (C-NASQ) strategists. Bloomberg reported that the strategists, led by Chris Montagu, wrote in a note that investor positioning in S&P 500 futures is “completely one-sided”. It’s “setting new highs for a fourth consecutive week and increasingly the hold-out shorts are capitulating,” they said.

Strong US job market shows economic strength

Available positions in the US job market – a bellwether for the economy – increased to 7.74 million from a revised 7.37 million reading in September, according to data from the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS).

Tech rally sends S&P to 56^th record

A rally in big tech drove the S&P 500 (VOO-NASQ) to its 56^th closing record in 2024. The Nasdaq 100 climbed more than 1%. Nvidia Corp. (NVDA-NASQ) led a gauge of the “Magnificent Seven” megacaps higher, with the group’s surge this year approaching 65%.

UK economic growth revised down

UK tax increases will hinder Keir Starmer’s goal of raising living standards, the Confederation for British Industry (CBI) warned, as household incomes are held back by budget measures. Bloomberg reported that the CBI downgraded its 2025 growth forecast to 1.6% from 1.9%.

ECB inflation light nearing end

The European Central Bank’s (ECB) fight against inflation is approaching its end but hasn’t been won yet, according to President Christine Lagarde. “Our battle against inflation is nearing completion, not completed, not mission accomplished yet,” Lagarde told European lawmakers in Brussels. “We still have a bit of work to do, but we are in sight of target and that would predicate that we begin looking forward more than we have in the last couple of years.” In this regard, Governing Council member Joachim Nagel, said that with euro-area consumer-price growth slowing largely as projected, “interest rates should converge slowly and at a measured pace toward neutral territory”, adding that there’s no need to act “too hastily”.

Morgan Stanley bearish on Chinese earnings

According to Morgan Stanley (MS-NASQ) insights carried by Bloomberg, corporate earnings in China may continue to underwhelm as the measures taken by Beijing so far are insufficient to reverse the deflationary trend gripping the economy. “We already had 13 quarters of consecutive earnings miss, and we expect the upcoming fourth-quarter results to be another miss,” said Laura Wang, chief China equity strategist at the firm. “Without very meaningful policy stimulus, the next two quarters could be earnings miss as well.” According to Bloomberg, Wall Street brokerages have turned more cautious on Chinese stocks in recent weeks, given growing doubts over the strength of the government’s support and the renewed risk of geopolitical tensions following Donald Trump’s win in the US presidential election. Morgan Stanley last month reduced Chinese equities to a slight underweight within the region, citing stronger headwinds on corporate earnings.

SA 2025 economic outlook

Despite South Africa’s economy being significantly integrated into the global market, with total trade accounting for over 60% of GDP, domestic growth has increasingly diverged in recent years due to the ongoing electricity and logistics crises. However, the economy is poised to enter a cyclical upswing, with GDP growth projected to increase from an estimated 1.1% to 1.9% in 2024 and 2025, more than double the ten-year average of 0.8%. Baseline forecasts by Investec analysts anticipate an additional 50 basis points reduction in the repo rate in Q1 2025, with a further 25 basis points cut contingent upon global and local dynamics.

Stock focus: JSE

With SA equity market activity expected to support above-inflation earnings growth (+7.2%) over the next four years, with continued strong cash generation, the Johannesburg Stock Exchange (JSE-JSE) is flashing buy signals.

Sector focus: EVs

A transportation research group said one in four new cars registered in the UK last month were fully electric, touting the new figures as evidence that the country’s electric vehicles (EV) sales mandate is working. According to New AutoMotive, which published the data, the figures represent the highest monthly market share for EVs in nearly two years. The November number is ahead of the 22% target manufacturers must hit this year under the country’s EV sales quota.