Last year, a supergroup called The Magnificent Seven stormed the stock market and accounted for an outsized portion of returns. This year, the band of seven Big Tech stocks— Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — has broken up. Alphabet, Apple, and Tesla are no longer top of the pops. In fact, Telsa is down more than 30% year-to-date and 58% lower than its all-time high, leading it to fall out of the top seven largest companies in the US where it has been replaced by Warren Buffett’s Berkshire Hathaway.
And while the other four have continued to storm the charts, we’ve also seen a host of new players enter the hit list of equities in 2024. As The Economist notes in an article this week, the Magnificent Seven was, to a large extent, a creation of financial media and equity analysts. The idea of seven AI-fueled tech giants ruling the charts offered a compelling way to explain what was happening in the markets at the time.
But the differences between the seven’s core businesses made it inevitable that they would split up – and sooner, rather than later – in the way of most musical supergroups. This is by no means bad news because it means we’re seeing more diversity coming into global equity markets.
No longer are stock market gains restricted to a few key stocks in the tech sector: companies in other industries are also being rewarded for good earnings where appropriate. In the first quarter of this year, the tech-heavy Nasdaq Index delivered weaker gains than the S&P 500 after beating it every quarter last year.
Moreover, equities growth looks like it will not be a story only about American outperformance going forward. The broader MSCI World index has returned 25.2% since the end of October 2023, only slightly lagging the S&P 500’s gain of 26.1% over the same period. According to Bloomberg, investors are eyeing small caps and Europe for strong returns this year compared to the more expensive US mega-cap stocks.
While we live in a volatile world – war in the Middle East and Ukraine, the US presidential election, and other risk factors that remain in play – the bull market appears to be widening into new geographies, industries, and sectors. This is welcome news for investors who have been concerned by the concentration risks associated with Big Tech dominance.
The audience has become more attuned to merit-based performances.
“The lifeblood of a bull market is rotation. Clearly, we’ve seen rotation out of some of the highflying tech names and into some of the cyclicals.”
– Ryan Detrick, Chief Market Strategist Carson Group
Global News
- US President Joe Biden and Chinese leader Xi Jinping spoke by telephone on Tuesday, their first one-on-one communication since meeting in California last November. The candid and constructive discussion covered topics such as AI, military cooperation, climate change, and efforts to fight drug trafficking, among other subjects. Treasury Secretary Janet Yellen will make her second trip to China this week for high-level talks to try to stabilise the relationship between the world’s largest economies.
- Fed chairman Jerome Powell said on Wednesday that policymakers will wait for clearer signs of lower inflation before cutting interest rates. He indicated that recent inflation figures, although higher than expected, did not materially change the overall picture. Two Fed officials, San Francisco Fed President Mary Daly, and Cleveland Fed President Loretta Mester said they still expect the US central bank to cut rates three times in 2024. However, Fed Bank of Minneapolis President, Neel Kashkari, said interest-rate cuts may not be needed this year if progress on inflation stalls, especially if the economy remains robust.
- The galloping dollar is exasperating central bankers and governments around the world, forcing them into action to relieve the pressure on their own currencies. From Tokyo to Istanbul, policymakers are stepping in to defend exchange rates.
- Gold has had a great week, despite its price declining by 0.9% to $2,279.88 an ounce after investors considered remarks from Fed officials. Despite the dip, the gold price has since recovered to $2,293.93 at the time of writing, close to its record $2,305.64 reached earlier in the session on Thursday.
- Brent crude climbed above $90 a barrel for the first time since October on Thursday as the conflict in the Middle East showed signs of escalating. Although Brent Crude is approximately 7% higher than the day before the Hamas attacks on Israel on 7 October 2023, it is still 4% lower than the levels of September 2023.
- The UK could exit its recession when official first-quarter growth data is next published, despite a slowdown in services activity in March. Although the S&P Global Composite Purchasing Managers index edged down to 52.8 in March from February’s 53.0. British businesses are faring better than peers in France and Germany but lagging expansions in Italy and Spain.
- Tesla posted its first annual drop in sales since the first year of the pandemic, down to 387,000 units, because of growing electric vehicle competition from Chinese and Western automakers. Wall Street analysts had not expected sales to drop so dramatically. Shares of Tesla fell 5% on the news on Monday and have lost more than a third of their value this year.
- Microsoft is set to sell its chat and video app Teams separately from its Office product, a move that comes six months after it unbundled the two products in Europe in a bid to avert a possible EU antitrust fine. The European Commission has been investigating Microsoft’s linking of Office and Teams since a 2020 complaint by Salesforce-owned competing workspace messaging app Slack.
- Taiwan’s biggest earthquake in 25 years disrupted production at the island’s semiconductor companies, with potential repercussions for the global technology industry. TSMC, the main contract chipmaker to Apple and Nvidia, moved staff out of certain areas and said it’s assessing the impact of the quake.
- Intel has disclosed deepening operating losses at $7 billion compared with the prior year’s $5.2 billion, for its foundry business, a blow to the chip maker as it tries to regain a technology lead it lost in recent years to TSMC. The unit had revenue of $18.9 billion for 2023, down 31% from $27.5 billion the year before. Intel shares were down 4.3% after the announcement.
- GE (General Electric) has completed a split into three companies, marking the end of an era of a once mighty industrial icon founded by Thomas Edison in 1892. GE Aerospace, which builds jet engines, and GE Vernova, which is comprised of its energy generation business, started trading on US markets on Tuesday, while GE HealthCare began trading separately in 2023.
- As at Thursday’s close the S&P 500 was 2% down for the week.
Local News
- National Assembly speaker Nosiviwe Mapisa-Nqakula has resigned from her position amid an investigation into alleged corruption and money laundering during her tenure as defence minister, although she has said this move was not an admission of guilt. Her resignation relieved her party, the ANC, of the potential pickle of defending her in the DA’s motion of no-confidence debate.
- Parliament is working hard to get the Gold and Foreign Exchange Contingency Reserve Account Defrayment Amendment Bill passed before the elections. This will allow National Treasury to draw R150 billion from the account containing South Africa’s gold and foreign currency reserves to pay down some debt. The Bill was submitted to Parliament on the day of the National Budget. An additional 22 Bills await President Ramaphosa’s signature, including the controversial National Health Insurance Bill.
- Marianne Merten has written an in-depth elections scenario piece, which is available here, in which she says that coalition-making may be required as MPs need to be sworn in 14 days after the elections. Pundits and polls have the Multi-Party Charter getting well below 50% of the votes and predict the governing ANC will drop below the majority required to form the next government.
- At least 17%, or one in six, of the individuals who have put their hands up to be South Africa’s next president have faced accusations of significant wrongdoing. But only one – former president Jacob Zuma – looks set to be excluded from the ballot. These tarnished candidates include: African Congress for Transformation’s Ace Magashule; African Content Movement’s Hlaudi Motsoeneng; African Movement Congress’s Roy Chockalingam Moodley; Alliance of Citizens for Change’s Masizole Mnqasela; Economic Freedom Fighters’ Julius Malema; Free Democrats’ Johan Reid; Patriotic Alliance’s Gayton McKenzie; and People’s Movement for Change’s Marius Fransman. Read more here.
- Reserve Bank governor Lesetja Kganyago says that a lower inflation target would make South Africa more competitive and bring the country in line with its peers. He said policymakers were in talks around this, and he would prefer a lower target than the current 3%-6% range, which he sees as too wide, to be in place before the end of 2025.
- The South African Revenue Service has said that its preliminary estimates show it has collected more than R1.74 trillion during the 2023/24 fiscal year, an increase of 3.2% over the previous year. This is R10 billion more than forecast in the National Budget that Finance Minister Enoch Godongwana presented to Parliament in February. As a result, the National Treasury’s projection of a budget deficit of 4.9% of gross domestic product can be lowered slightly.
- Statistics South Africa’s first migration report shows the country has lost almost a million citizens to emigration since 2000. The data also suggests claims about a ‘brain regain’ are overly optimistic. The report shows that, while fewer people are making applications for refugee status, more South Africans are seeking protection in the US, Ireland, and Canada.
- The JSE has lost more than R2 trillion in market capitalisation since 2022 with delistings, foreign capital flight, geopolitics, low valuations, and a weak economy flagged as some of the reasons behind the decline. Its market capitalisation had fallen from R21.34 trillion in 2022 to R19 trillion by the end of the 2023 financial year.
- At the time of writing the rand was 1.6% stronger and the ALSI was flat for the week.
Sources: Dynasty, BusinessLIVE, M&G, News24, CNN, Bloomberg, WSJ, NYT, Reuters, Daily Maverick, etc.