Microsoft with a market cap of $2.887 trillion took over from Apple (market cap of $2.874 trillion) as the world’s largest company last week. Apple had held that crown since it first overtook Exxon Mobil as the world’s most valuable public company in 2011.
Australian Share Market (ASX 200) – down 1% weighed down by our large Materials sector despite positive offshore leads particularly in Tech stocks. Our relatively small Info Tech sector (+2.85%) led the gains followed by Consumer Discretionary (+1.15%) as rate cut expectations increased following the employment report, and Financials (+0.46%). Materials (-3.72%) led the declines with iron ore, lithium and nickel prices falling amid ongoing concerns about the Chinese economy. Chinese equity markets were down 5% to start the new year. REITs (-2.72%) and Utilities (-2.51%) also declined as longer-term bond yields crept back up last week. Australian consumers remained deeply pessimistic according to the Westpac-MI consumer sentiment index that was the lowest January read outside of the early 1990s recession. Fewer respondents expect further rate hikes following recent developments (December RBA hold decision and lower inflation) but their assessment of family finances deteriorated further, still pressured by rising costs of living. Our employment data last week showed a large 65.1K jobs loss in December, vs expectations of a 15.0K gain. It was the biggest monthly drop in employment since September 2021, although November and October were surprisingly large gains so it was possibly a case of giving some of those back. The Unemployment rate at 3.9% was in-line with expectations and unchanged due to the lower participation rate (66.8% from 67.2% last month). Jobs growth averaged 16.7K a month over Q4, lower than prior quarters and consistent with a cooling labour market, despite the still high job vacancies, whilst adding to expectations that interest rates have peaked. The upcoming Q4 CPI data will be key ahead of the February RBA meeting. Estimates are currently for a hold in February with interest rates markets currently pricing in two rate cuts by year’s end.
U.S. Share Market (S&P 500) – up 1.17%, with the Dow (+0.72%), and Nasdaq (+2.62%) also higher for the 2nd week in a row although geopolitical risks escalated. It was a solid week at the headline level with the S&P 500 hitting a new all-time high for the first time in 2 years although market leadership was again very narrow with the equal-weighted S&P 500 index declining last week. Fed Governor Waller (a current Fed voting member) added to the growing narrative for rate-cut expectations saying 2% PCE inflation is now in “striking distance”, although March rate hike bets were pared back somewhat on what was generally better than expected economic data. US December retail sales were stronger than expected again, up 0.6% for the month vs estimates for a 0.4% increase reflecting solid holiday season spending. The NAHB Housing Market Index rose for the 2nd month in a row to 44 in January, well ahead of expectations with the improvement attributed to the decline in mortgage rates as bond yields tumbled late last year. US Housing Starts and Permits were a bit better than expected and the weekly initial jobless claims came in at 187K, the lowest since September 2022. January University of Michigan consumer sentiment leapt to 78.8, well ahead of consensus, the highest since July 2021 and the largest two-month gain since 1991. The 1-year inflation expectations also fell 0.2% to 2.9%, the lowest since September 2020. Weakness in manufacturing data re-emerged following an improvement late last year with the NY Fed’s January Empire manufacturing survey tanking to -43.7, the lowest reading since May 2020. The Philadelphia Fed manufacturing index was also weaker than expected and Capacity Utilization was unchanged at 78.6% in December, holding near two-year lows was another weak spot. The Q4 earnings season is underway with 10% of S&P 500 companies having reported results with 62% of those reporting a positive EPS surprise. The blended year on year earnings decline for the S&P 500 is currently -1.7% from the 10% that have reported, below the 1.6% Q4 EPS growth expected for the S&P 500 before the earning season started.
India Avenue Fund returns 30% in 2023. The India Avenue fund provides exposure to India equities as part of our Emerging Markets exposure in the International Equities portfolio and have had a strong 2023 relative to benchmark. The fund returned 30.63% last year, outperforming its benchmark by 10.57% with outperformance driven by exposure to mid and small caps, which outperformed large caps by a significant margin. India equities have had a good run over recent years raising some concerns around valuations with manager comments stating “It is our view that India can hold its premium valuation to other Emerging Markets due to its macro stability, rising weights in global indices, investor inflows and corporate earnings transparency.”
Schlumberger (SLB) reports inline Q4 – Increases dividend by 10% – Anticipates strong growth. Schlumberger reported Q4 EPS of $0.86 ex-items on Friday night, a slight beat on the $0.84 expected. Q4 revenue of $8.99B was also largely in line with the $8.96B expected. With the balance sheet in good shape and strong cash flows they also increased the dividend by 10% and are targeting to return more than $2.5 billion to shareholders this year, up 25% compared to 2023. Management comments included” In 2024, we will experience another year of strong growth driven by the international markets. Benefiting from these market dynamics, we foresee further growth led by Production Systems, strengthened by the additional subsea opportunities from our OneSubsea joint venture. Sustained momentum is expected in Reservoir Performance, accompanied by increased activity in Well Construction. Additionally, we expect continued customer adoption of our Digital business, particularly in our new technology platforms.”
Shell (SHEL) the latest to suspend Red Sea shipments. Geopolitical risks remained elevated last week particularly the Middle East conflict with British oil major Shell the latest to suspend all shipments through the Red Sea indefinitely after U.S. and U.K. strikes on Yemen’s Houthi rebels triggered fears of further escalation. The Red Sea provides access to the Suez Canal, a major global shipping route that links the Indian Ocean (Asia) with the Mediterranean (Europe). The alternative route is to go around Africa. Recent data by global logistics company DSV A/S showed that shipping cost along that route have increased by over 300% since November.
The Week Ahead
Domestic economic data releases this week include NAB Business Conditions tomorrow, and Westpac Leading Index on Wednesday.
International economic data releases include US Leading Indicators tonight, Bank of Japan Interest Rates decision tomorrow, and Eurozone Consumer Confidence, and Markit Manufacturing and Services PMI’s tomorrow night. Thursday night is German IFO Business Survey and ECB Interest Rates decision along with US Durable Goods Orders, Q4 GDP, Wholesale Inventories and New Home Sales. Tokyo CPI is Friday with US PCE inflation and Pending Home Sales Friday night. Q4 earnings season will ramp up with 75 S&P 500 constituents set to report this week.
Portfolio company reporting this week includes South 32 (S32) Q2 today, with Johnson & Johnson (JNJ) Q2 and Verizon (VZ) Q4 tomorrow night. Woodside (WDS Q4 is Wednesday with Freeport McMoRan (FCX) Q4 Wednesday night. Santos (STO) Q4 is Thursday with Intel (INTC) Q4 Friday night.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.
Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.