August – panic to profit, News Flash, Dynasty Asset Management

As we have written in previous News Flashes, August has, on average, been the worst month for the stock market since 1986. With the Flash Crash that started the month, investors had every reason to fear that August 2024 would be an ‘average’ month by that measure.

Yet, as markets close for the month, most of the major indices have rebounded to higher levels than they were a month ago and some are continuing to power to new highs. For many indices, this marks the fourth consecutive month of gains and a year where every month apart from April has delivered positive returns.

The Dow Jones moved up to its 25^th record high close of the year on Thursday, while the S&P 500 looks set to end the month marginally higher than it started. The tech-heavy Nasdaq composite has lost some ground, but not as much as one would expect, given a 6% drop in Nvidia’s stock price after investors were disappointed with growth in its Q4 results.

The Flash Crash at the start of the month was largely a factor of the unwinding of global carry trades in Japan – an unusual circumstance that culminated in the S&P 500 troughing at 6% down month-to-date on 5 August. However, when markets digested that risk and calculated that it had largely been contained, the focus shifted back to macroeconomics and company earnings. These factors caused the S&P 500 to rebound by 7.8% from its intra-month low as at yesterday’s close.

It is noteworthy that a tumble in tech titan Nvidia, with a $3 trillion market capitalization, did not catalyse broader market fears. This indicates that market participants remain optimistic that the Fed is guiding the US economy to a soft landing with inflation largely under control and strong prospects for an interest rate cut in early September. A weaker dollar (down 2.95% for the month against a basket of leading global currencies), further corroborates that investors anticipate significantly lower interest rates in the US by the end of 2025.

With US presidential debates in September and an unpredictable election ahead of us, some volatility in the last months of the year should be expected. It would not be surprising to see further corrections after the market has delivered such strong performance throughout 2024. Yet, the lesson from August’s volatility is that short-term market movements are impossible to predict.

Markets tend to move in exaggerated ways in response to positive or negative news, such as geopolitical developments, macroeconomic data and results from bellwether stocks. Ultimately, however, equities do deliver compelling, above-inflation returns over the long term for patient investors who don’t panic.

“You get paid for two things in investing. One is mispricing and the other is endurance of volatility.”

– Morgan Housel, financial author

Global News

Fed chairman Jerome Powell unambiguously signalled that lower interest rates are finally on the horizon, marking a crucial milestone for the bank’s historic fight against inflation. Powell was speaking at the annual gathering of central bankers and economists in Jackson Hole, Wyoming, last Friday. He also expressed confidence in the US economy’s ability to pull off a soft landing. Bond traders are focusing in on bets over the size of that first reduction and the future path of easing.
The US economy grew at a slightly stronger pace in the second quarter, gaining 3%, which was more than initially reported, reflecting an upward revision to consumer spending that more than offset weaker activity in other categories. Growth was up from the previous estimate of 2.8%, according to Bureau of Economic Analysis figures published on Thursday. The economy’s main growth engine, personal spending, advanced 2.9%, versus the prior estimate of 2.3%.
German inflation slowed to the European Central Bank’s target in August, dropping to 2% from 2.6% in July, taking inflation to the lowest since 2021. It was less than all bar one economist surveyed by Bloomberg had estimated and supports the case for another cut in interest rates next month. A report earlier yesterday showed that price pressures also eased significantly in Spain, reaching a one-year low. Euro-area inflation numbers were published earlier this morning. Core inflation in the zone eased to 2.8% and investors are anticipating two or three more European Central Bank cuts this year.
Chinese companies could sell a $1 trillion pile of dollar-denominated assets as the US cuts interest rates, a move which could strengthen the yuan by up to 10% – a number that would be acceptable to China – according to Eurizon SLJ Capital CEO Stephen Jen.
The war in Sudan, despite receiving less global attention than conflicts in Gaza and Ukraine, poses a significant threat with potentially higher casualties. Sudan, Africa’s third-largest country, is engulfed in violence, with its capital in ruins, around 150,000 people killed, and over 10 million displaced. A looming famine could result in up to 2.5 million deaths by the year’s end. The crisis is not only the world’s worst humanitarian disaster but also a geopolitical threat. With external powers like Middle Eastern states and Russia backing the conflict, and the West largely uninvolved, the violence risks destabilising neighbouring regions, causing refugee crises, and threatening global trade routes, particularly the Suez Canal.
Nvidia failed to live up to investor hopes with its latest results on Wednesday, delivering an underwhelming forecast and news of production snags with its much-awaited Blackwell chips. While the quarterly report met or beat analysts’ estimates on nearly every measure, Nvidia investors have grown accustomed to blowout quarters, and the latest numbers disappointed, with fears of delays over the Blackwell chip’s launch sending the stock down as much as 8.4% on Wednesday. Third-quarter revenue will be about $32.5 billion.
Apple and Nvidia are in talks to invest in OpenAI for an undisclosed amount, according to sources. The investment would be part of a new OpenAI fundraising round that would value the ChatGPT maker above $100 billion. This would strengthen their ties to a partner integral to their efforts in the AI race. Microsoft, which owns a 49% share of the AI startup’s profits after investing $13 billion since 2019, is also expected to participate in the funding round.
Berkshire Hathaway is the first US company outside of the tech sector to go over $1 trillion in market value. Stock in the company, a Warren Buffett conglomerate, rose as much as 0.8% on Wednesday to push its market capitalisation above the trillion-dollar mark for the first time. The stock has rallied this year on strong insurance results and economic optimism. It has joined the ranks of a small group to crack the milestone, dominated by technology giants like Alphabet, Meta Platforms and Nvidia.
As at Thursday’s close the S&P 500 was 0.76% down for the week.

Local News

The JSE All Share Index, mirrored the global market pullback in early August, troughing 4% down on 6 August, only to subsequently recover 6% from that level as at yesterday’s close. The Index reached a record high on Tuesday, 27 August.
The rand had strengthened by a significant 2.5% against the dollar for the month of August as at yesterday’s close. This significant strengthening has, in our view, been primarily driven by a weakening dollar and not by South African specific factors.
The disclosure that Minister of Justice and Constitutional Development, Thembi Simelane, seems to have received money from someone intimately involved with the VBS scandal could lead to questions about the motives behind every decision she makes as Justice Minister, commentator Stephen Grootes writes for Daily Maverick. “Once again, it raises the spectre that once again a justice minister in our country cannot be trusted. And it may pose important tests for President Cyril Ramaphosa, his coalition partners, and both the EFF and MK.”
The National Treasury is reviewing key legislation that governs the financial management of government departments and municipalities with a view to strengthening it. The aim is to implement the Zondo Commission’s guidance to bolster consequence management. Cape Town was the only large metro to receive a clean audit as the auditor-general’s findings on the embattled local government sector continue to highlight the difficulty of turning around the country’s municipalities grappling with poor service, political instability, sheer incompetence and lack of consequence management.
The South African Reserve Bank has said that an end to regular power outages may lead to an upward revision to economic growth forecasts and help in the fight against inflation. The central bank currently expects the economy to grow 1.1% in 2024 and 1.5% next year, and forecasts inflation to slow to below the 4.5% midpoint of its target range where it prefers to anchor expectations in the fourth quarter. Forward rate agreements – used to speculate on borrowing costs – are pricing in about 62bps of interest-rate cuts by year-end from the current level of 8.25. But economists have warned about above-inflation pay raises as this could keep consumer spending, the bedrock of the economy, at high levels, weighing on inflation.
South Africa’s largely consumer-driven economy is likely to get a financial stimulus from two-pot withdrawals, as the new pension system takes effect from September. Big banks, asset managers and economists are expecting withdrawals from the ‘savings pot’ of pensions totalling between R50 billion and R100 billion in the first year, which should provide a welcome boost to economic growth during this period. Conversely, these numbers represent an erosion of employees’ retirement benefits.
An editorial in this week’s Financial Mail is warning that should Eskom get even half of the 40% tariff hike it wants for 2025, consumers will take a massive knock. The article points to the fact that Nersa’s methodology has allowed the power utility to increase prices by more than 400% since 2010. “These increases have wiped out one of South Africa’s few global competitive advantages, that of producing relatively cheap energy, and have contributed to the post-pandemic cost of living crisis that has forced many consumers into debt distress.”
National Health Insurance is becoming a tool for political and factional battles, which could mean that productive, logical debate on its future – and on the urgency of ensuring universal access to quality health services – could be indefensible, according to news analysis by Natasha Marrian for BusinessLIVE. She writes that the ANC will face difficulties retreating from its hardline position on the legislation, which was signed into law just before the elections.
Harmony Gold has outperformed its competitors on the JSE this year, as the price of gold continues to rally in anticipation of US interest rate cuts. Harmony, South Africa’s largest gold producer by output volume has seen its share price up 148% in one year, taking its value to R118 billion. Harmony, AngloGold and Gold Fields combined gained R198.9 billion in combined value over the last year. The gold price has climbed more than 20% since the start of the year, hitting a high of $2,531.66/oz on 20 August.
Capitec, which has about 23 million clients, has flagged a surge in South Africans betting on sport as more people seek ways to find additional money. Data from the National Gambling Board shows sports betting in 2022/23 accounted for more than half of all betting activities locally, up from 10% in 2010.
Sanlam’s R6.5 billion acquisition of Assupol has been approved by the Competition Tribunal with undisclosed conditions. Sanlam aims to build a fortress position locally while looking to expand on the rest of the continent and in India. It wants to expand in Asia to diversify its premiums and counter tepid growth at home. It generates 82% of its premiums in South Africa. Investec, which owns an indirect stake in Assupol, will receive a cash injection of R1.7 billion.
As at the time of writing, the rand was 0.5% stronger and the ALSI was 0.6% down for the week.