October 25 Update
Making The News
- The Fed Cut
Following the Fed’s decision to cut interest rates to their lowest level in three years (3.75% to 4.00%), gold, typically viewed as a safe-haven asset, fell below $4,000, signalling a cooling of the recent gold rally. Despite the rate cut, Fed Chair Jerome Powell struck a hawkish tone, cautioning investors that another cut at the December meeting was “not a foregone conclusion.” His comments pushed bond yields slightly higher and supported the US dollar, which strengthened against all major developed market peers during the month, rising 2.1% month on month.
- US Government Shutdown
The US government shutdown, which began on October 1st, has become the second longest in history after the 2018 to 2019 shutdown that lasted 35 days. The current impasse stems from a disagreement between Republicans and Democrats over a bill to fund government operations after the expiration of the previous federal budget. In the US system, Congress must approve a spending plan for the president to sign into law. Democrats are pushing for the inclusion of extensions to tax credits that make health insurance more affordable for millions of Americans and for the reversal of Trump-era cuts to Medicaid. Analysts estimate that the ongoing shutdown could shave roughly 0.1 to 0.2 percentage points off economic growth for each week it persists, equivalent to about $15 billion per week.
- SA Inc takes the Wheel
Although the JSE has continued to rally, up +33.9% year to date, the drivers of performance shifted notably in October. Through September, precious metal miners accounted for roughly two thirds of the JSE’s year-to-date gains, with gold and platinum miners surging 184% and 173% respectively over the first nine months of the year. In contrast, domestically oriented stocks had gained just 4% over the same period. In October, however, this trend reversed, as precious metal miners weighed on performance with gold miners down 5% month on month and platinum miners down 10% month on month, while domestically geared companies rallied collectively by 8% month on month.
- The Obvious
At a time when Berkshire Hathaway has reported its highest cash holdings on record at $382 billion, the US equity market continues to dominate the global investment landscape. The US share of global equity market capitalization has climbed to 56%, its highest level in at least 25 years, surpassing even the Dot-Com Bubble peak. The top 10 US companies now account for nearly a quarter of global market value, with eight of them in the technology sector and collectively worth almost $25 trillion. Meanwhile, US earnings make up only 44% of global corporate profits, a gap that has yet to narrow.
