Trading Update : 25 September 2024

You get a cut, you get a cut, everyone gets a cut! The interest rate cutting cycle is well and truly underway as the US Fed slashed rates by a chunky 50bps while the SARB took a more conservative approach with a 25bp cut. More money in consumer pockets means more spending and a bump to business and consumer confidence.

Rate cut euphoria grips SA

The South African Reserve Bank (SARB) monetary policy committee (MPC) reduced its benchmark rate by 25bps to 8%. The central bank also considered a 50bp cut after annual inflation fell below the midpoint of the central bank’s target range for the first time in more than three years. Consumer prices rose 4.4% in August, compared with 4.6% in the prior month. The SARB expects inflation will average 4.6% this year, 4% next year and 4.4% in 2026. Those forecasts were all lowered from 4.9%, 4.4% and 4.5% at the previous MPC meeting. In response, the Top40 Index rose 1.3% as rate cut euphoria gripped the markets. The move was the biggest since rising 2.1% on July 31. Naspers (NPN-JSE) contributed the most to the index gain, increasing 4.2%. Impala Platinum (IMP-JSE) had the largest increase, rising 6.3%. The rand also strengthened against the US dollar. Despite giving back some gains, it is still a good time to convert.

S&P hits another record high

There was no Fed hangover overnight in the US following the 50bp rate cut as almost every major group in the S&P 500 (VOO-NASQ) gained, closing at its 39th record high this year. A slide in jobless claims to the lowest since May signalled that the labour market remains healthy and expectations that the US will dodge a recession and rather stick a soft landing, suggesting room for additional, more aggressive cuts from the Fed. The news was another boost to global risk sentiment.

Time to shine for value stocks

The stock rally set off by the Federal Reserve’s long-awaited interest-rate cut seems almost certain to rekindle worries about lofty valuations, with the S&P 500 Index (VOO-NASQ) pushing back to a new record high. Yet, for investors willing to bet on an economic soft landing, there are still some bargains out there, suggests a Bloomberg report. During the S&P 500’s rebound from the early-August selloff, it has broadened to sectors beyond tech. While tech-heavy sectors like consumer discretionary and IT still outperformed, the rest of the pack isn’t far behind. There’s scope for more catching up now that the Fed has started easing policy. Given pricey tech valuations, uncertainty around the economy and the November presidential election, a more defensive playbook might be required. That means the epic distortions caused by investors’ obsession with tech this year have room to dissipate. Bloomberg Intelligence’s Michael Casper noted that the valuation gap between the heavyweight Magnificent Seven big tech stocks and the rest is abnormally large and is poised to compress as policy eases. Small caps are also very cheap, relatively speaking. The Russell 2000 also outperformed during the post-Fed-meeting rally, since lower borrowing costs are expected to ease the burden on small-cap companies. If one takes the long-term view, their valuations are still depressed compared with large caps. Finally, consider value stocks. The S&P 500 Value Index is still trading at a large discount to the S&P Growth Index (VOOG-NASQ). With the Fed’s rate cuts set to juice the economy and help profit growth spread beyond tech, undervalued shares are catching investors’ attention again. ETFs focused on value stocks have raked in $6.9 billion so far in September, the cohort’s best month this year, while growth-stock ETFs have shed about $13 million, BI data show.

UK consumer confidence crashes

Bloomberg reports that the GfK UK consumer confidence index crashed in September by the most in two and a half years as households turned negative on the outlook for both their personal finances and the economy.

US consumer bellwethers flash red

Multiple reports by Bloomberg raised warning signs about US consumer health. FedEx Corp. (FDX-NASQ) said its business would slow in the year ahead and reported a worse-than-expected quarterly profit in a warning sign about the direction of the US economy. The stock sank 14% after hours. Sysco (SYY-NASQ) shares also slumped as much as 4.4%, the most intraday since May 2023, after CEO Kevin Hourican said restaurant traffic industrywide has softened a bit in the current quarter versus fiscal 4Q while speaking at the Wells Fargo 7th Annual Consumer Conference.

Lighthouse raises R1 billion after bookbuild

Mauritius-based Lighthouse Property (LTE-JSE) raised R1 billion in equity through an accelerated bookbuild with shares priced at R7.85 each. After the close of the oversubscribed bookbuild, Lighthouse issued 127.4 million shares. The company increased its equity raise target to R1 billion due to “strong demand”.

Bytes Tech releases strong 1H update

Bytes Tech (BYI-JSE) shares rose after a trading update showed a strong first-half (1H) performance. Bytes traded “strongly” in the 1H, with adjusted operating profit growth “comfortably” in the double digits at around 13.5%, according to the trading update. The company’s net cash position at the end of 1H was £71.5 million after paying £35.3 million of final and special dividends, and it expects strong cash conversion for the full year.

 

 

Discovery (DSY-JSE) is cautiously optimistic about finding a workable solution to the NHI, which could cut coverage for private insurers.

A Bloomberg report explains that Discovery’s modelling shows that South Africa will need R200 billion a year in additional funding to make the law’s aim of achieving universal access workable. That would result in a 30% hike in income taxes, and a 70% cut to the benefits private sector members typically enjoy. “We do not believe NHI is workable without private-sector inclusion,” said CEO Adrian Gore at an earlier investor briefing.

Discovery also reported an increase in profit to 7.28 billion rand from a year earlier, while new business rose 18% to R26.7 billion. It will pay a final dividend of R1.52 rand, taking the total payout for the year to R2.17.

Information correct at time of publishing. It is important to conduct thorough research and analysis using a combination of fundamental and technical analysis techniques to make informed trading decisions. Additionally, consider your risk tolerance, investment objectives, and time horizon when assessing company performance for trading.

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