ARTICLES

Market Overview

This week, the US Federal Reserve Bank’s monetary policy committee (MPC) held interest rates unchanged at their historically high levels and said that they intended to hold rates at these high levels for longer than previously expected. This information was followed by the April 2024 non-farm job creation number which came in at 175 000 – considerably lower than expected and almost half of March’s revised 315 000 figure.

Markets have mostly reacted to these numbers negatively. The bulls on Wall Street have been trying to “buy the dip” for the past ten days in the hope that the correction is over. Despite the strong close on Friday which saw the S&P gain 1,26%, we believe that the correction may not yet be over.

One of the indications is that the drop in the price of oil during this correction on Wall Street is persisting. Oil closed at around $83 on Friday – significantly down on its high of over $91 on 5^th April and almost 7% down on the week.

The drop is partly due to the general relaxation of tensions in the Middle East where a ceasefire in the Israel/Gaza war may be imminent. It is also partly due to the fact that the driving season in America is almost over and the demand for fuel usually drops off as the summer holidays come to an end.

The fall in the oil price is good news for the Biden election campaign because it impacts almost all Americans positively – and it is bad news for Russia and Putin who rely on oil revenues to fund the on-going war in Ukraine. Consider the chart of the price of North Sea Brent oil:

Here you can see that after making a cycle high at $91.60 on 5^th April 2024, the price of North Sea Brent has been falling, culminating in 5 down days last week. The downward trend broke through the upward trendline which has been in existence since December last year and possibly indicates a new downward trend.

Of course, the weakening oil price is very good for South Africa and will help to bring the price of petrol down from its current high levels above R25 per litre. It will also help the rand to continue its current strengthening trend. Consider the chart of the rand against the US dollar:

For the past few months, we have been drawing you attention to the fact that the rand/US$ chart has been operating in a classical “triangle” and that sooner or later that formation would be broken, either on the upside or the downside, indicating the future direction.

It now appears that the rand has broken out of the triangle on the downside – which means it is strengthening and should continue to strengthen. There are many possible reasons for this, including:

1. A resurgence of  risk-on sentiment in international markets as bullish investors find reasons to be optimistic about the progress of US interest rates.
2. Optimism that the local elections will soon result in a better, new administration of the South African economy.
3. That a possible sustained drop in the price of oil will mean lower outflows and reduced pressure on the rand.

As a private investor you should try to develop a clear and consistent opinion on the future of those major indicators which will impact on the JSE. These include the S&P500, the price of oil and the rand/US dollar exchange rate.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Uncertainty Soars

Investors are by their very nature risk takers, but they are always trying to reduce the risk which they have to take to a minimum. Donald Trump, with his threat of an international trade war and his on-again, off-again tariffs has significantly increased the level of risk in markets across the world. This can be seen in the extraordinary volatility in the S&P500

Liberation Day

Trump has done the unthinkable. He has deliberately engineered the collapse of the US and world stock markets in the nonsensical belief that somehow an international trade war will make Americans richer. Nothing could be further from the truth. His actions have taken the S&P down from its all-time record high of 6144.15 on 19^th February 2025 to Friday’s

The Creation of Money

The money supply of a country is a symbol of the goods and services of that country. Obviously, if the size of the money supply is increased more rapidly than the real growth of its economy, then you have more money chasing the same goods and services, resulting in rising prices. Since, over the long term, the only organisation that can create money is the government,

V-Bottom is likely

The 10% collapse of Wall Street, which is a direct result of Trump’s random policy of on-again, off-again tariffs, is very similar to what happened to Wall Street in February/March 2020 when investors tried desperately to accurately discount the impact of the COVID-19 pandemic.

Normally, corrections in the market

The Trump Correction

It is relatively unusual for the activities of American presidents or what they say to have an impact on the New York Stock Exchange, especially during their first 100 days in office. Trump, however, is the exception. His confused, on-again, off-again rulings on tariffs have rattled the market. Markets hate uncertainty and even Trump himself doesn’t appear to know exactly

Dividends

Investors know that the return on a share is made up of a capital gain plus the dividend. Private investors are mostly attracted to the prospect of making a capital gain on the shares which they buy and do not often consider the dividends. What they perhaps do not realise is that a capital gain is actually just the dividend in a different form.

Quarterlies

One of the major differences between the US equity markets and the JSE is that listed companies in America are required to report every 3 months, not every 6 months as they are on the JSE. The quarterly reports of the S&P500 companies are closely followed by investment analysts and predictions are made for their profits.

Gold's Record Run

On Friday last week, gold reached a new all-time record high of $2871.42 per ounce. Its gain in rands has been even more impressive rising from less than R1000 per ounce in August 1992 to last Friday’s close of R52864.85.

In our Confidential Report of March

Growth by Acquisition

Hudaco (HDC) is a master of growing by acquiring smaller businesses in similar fields of activity or businesses, which then complement its existing suite of businesses. It has been making these bolt-on acquisitions for many years and has developed great expertise at selecting and evaluating appropriate targets.

These bolt-on acquisitions are mostly small

The Impact of News

Old Wall Street wisdom says the following concerning news which comes out about individual listed companies:

1. Good news which is expected - causes the share price to drop.
2. Good news which is unexpected - causes the share price to rise.
3. Bad news which is expected - causes the share price to rise.
4. Bad