Newsletter – Week 21 2024 – Commodities on the rise

The podcast of the newsletter is available and you can download it HERE. We welcome all your input so please don’t hesitate to contact us if you’ve got any queries or suggestions.  

Market watch

The last month has seen a good runup in the JSE as you can see from the graph below – a 9.3% jump since the 10th of April. If you’d tried to time the market and be lured by the high interest rates that are prevailing in the market, you’d have lost out on this (more about this in the US markets below). 

Over a 5 year period which should remove sentiment and most anomalies from data, the JSE and Wall Street are fairly close:


Stock Markets and US Elections

The U.S. stock market is one of the best predictors of whether the incumbent party will win a presidential election.

There are so many predictions and pundits out there – and we’re still months off the elections – but historically the markets have had a strong correlation.  For example, a survey of a handful of the best-known prediction surveys earlier this week revealed that, depending on your focus, the probability that President Joe Biden will win re-election currently ranges from below 38% to a high of 76%. That’s so wide a range that it’s difficult to place much weight on any of the predictions.

What about other economic, financial and sentiment indicators?

In a recent analysis, the economy was measured by real GDP, the Conference Board’s consumer-confidence index was also looked at and the University of Michigan’s consumer-sentiment survey. In each case, they focused on their year-to-date changes as of Election Day. Only one: The stock market was the best predictor.

(at the 95% confidence level that statisticians often use when deciding if a pattern is genuine).

Mark Hulbert from Hulbert ratings segregated all presidential elections since the Dow Jones Industrial Average DJIA was established in 1896 into four equal-sized groups based on its year-to-date return on Election Day. As you can see, the probabilities (on the y axis) of the incumbent party retaining the White House grow in lockstep with year-to-date performance. So far, the DJIA’s return suggest a 58.8% probability that Joe Biden retains the White House.

Even if the electronic prediction markets weren’t sending such mixed messages, it would be hard to show that their track records are better than the stock market’s. That’s because, without a large sample, it’s very difficult for a pattern to meet traditional standards of statistical significance. The Iowa Electronic Markets (IEM), one of the oldest such instruments, began in 1988, for example. So its track record encompasses just nine presidential elections.

James Carville, former President Bill Clinton’s influential strategist during the 1992 election, famously said, “It’s the economy, stupid.” He used the line to remind Clinton’s campaign staff that all other issues pale in comparison to the economy as a determinant of whether the incumbent party retains the White House. Perhaps we should modify Carville’s line to “It’s the stock market, stupid.”


Timing the market

Investors are nearly 100 trading days into 2024 and the S&P 500 (see Cobie’s article below) is up a solid 11.6%.

The S&P 500 has risen 54 days and has declined 44 days. Of the days it has risen only 11 days account for gains of more than 1%. To have been part of these gains one needed to stomach the losses over the declining days as well. That is why the market is famously known as a voting machine over the short term but a weighting machine over the long run. Here’s a short trip down memory lane:

Jan. 8 (up 1.4%): The S&P 500 largely picked up where the 2023 rally left off after stumbling 1.5% over the first four trading sessions of the new year, with Nvidia Corp. NVDA, -0.46% on that day also unveiling new AI chips for personal computers, sending the stock to a new all-time high.

Jan. 19 (up 1.2%): Taiwan Semiconductor Manufacturing Co. Ltd’s 2330, +1.27% chief financial officer offered an upbeat revenue outlook.

Feb. 1 (up 1.2%): Traders looked to get ahead, or at least not be short, with Apple Inc. AAPL, -0.75%, Meta Platforms Inc. META, +0.68% and Inc. AMZN, -0.01% reporting after the bell. Meta and Amazon beat expectations.

Feb. 22 (up 2.1%): The best day of 2024 so far after Nvidia crushed earnings expectations.

March 12 (up 1.1%): Strong tech earnings, led by Oracle Corp. ORCL, -0.02% surging to an all-time high, outweighed disappointment over a hotter-than-expected March consumer-price-index reading.

April 5 (up 1.1%) and April 23 (up 1.2%): April delivered six of the S&P 500’s 10 worst days of 2024, but the month still saw two standout days. Neither had any clear catalysts, but served as a reminder that any market decline still tends to see up days as valuations trend lower..

May 3 (up 1.3%): A weaker-than-expected April jobs report eased worries about the Fed, while Apple jumped 6% after better-than-expected earnings and the announcement of a new $110 billion stock buyback plan.

May 15 (up 1.2%): A cooler-than-expected April CPI reading and a flat April retail sales report showed that “Bad macro news is good news.”

The exercise underlines that two themes — generative AI and expectations around the timing of Federal Reserve rate cuts — are driving market action. AI has been a reliable driver of gains, while speculation around the Fed has inspired both gains and losses. Worries over whether cuts would arrive were a major factor in the market’s April swoon.

Commodities are on the rise.

Since the last FOMC statement on May 1st, bonds, stocks, and gold have rallied strongly while crude prices have declined with a small drop in the dollar… Right across the board though, prices of commodities have been rising. (This is obviously good for RSA Inc.)


Regulation of Crypto starts

The House of Representatives passed landmark crypto legislation Wednesday with strong bipartisan support, signalling a potential sea change in Washington’s attitude toward the digital-asset sector.

The lower chamber voted to approve the  Financial Innovation and Technology for the 21st Century Act by a vote of 279 to 136, with near unanimous support from Republicans and 71 Democrats voting in favour of the bill.

Notable Democrats voting for the measure included former Speaker Nancy Pelosi of California and the House Minority Whip, Rep. Katherine Clark of Massachusetts.

Pelosi said in a statement that the measure was a “first step” and that she hoped to work with the Senate and Biden administration to improve the bill.

The law would create a tailored disclosure and registration regime for digital-asset companies, and grant primary responsibility for regulating the industry to the Commodity Futures Trading Commission at the expense of the Securities and Exchange Commission.

The Senate typically doesn’t take House bills and just vote on them. It does its own thing. So while the Senate might eventually be interested in considering some kind of crypto legislation, it almost surely won’t be this one.

Consumer spending in the US

Consumption spending accounts for approximately two-thirds of the US economy. It is vital that we understand the dynamics of the consumer because if the consumer falters, so does the US economy, which has far-reaching consequences. The surprising resilience of the US consumer in the face of a pandemic and then rising interest rates has surprised many. This resilience is a function of multiple factors, including a strong labour market, accumulated savings, wage growth, and government support, to name a few. The first and most important factor is the labour market, which has remained robust with low unemployment and steady job creation.

The number of people working second jobs though is at an all time high.

The high-yield market, which we have discussed before, has remained incredibly resilient. Despite the rate increases, high yield credit spreads trade at multi-year highs and are only about 100bps higher in absolute yield than before the pandemic.

Most companies should be able to absorb 100bps in increased financing costs. As a result, firms have not needed to lay off staff, keeping the unemployment rate low. With a tight labour market, employees have been in a good position to demand pay increases, which has helped to offset the pernicious effects of inflation. However, policymakers need to be careful as increasing wages ultimately leads to ever-higher inflation. Trying to find the balance is critical.  The consumer has been in a very similar situation to corporates which have termed out their debt. With the mortgage market being fixed for 30 years, increasing interest rates have little effect on existing homeowners.

The average mortgage rate has barely budged from the lows. Only those who wish to move or get on to the housing ladder for the first time suffer at the hands of a higher mortgage rate. The inability to port one’s mortgage could lead to interesting developments, both good and bad, and will be worth keeping an eye on in the coming months and years.



Aggregate bond indices are up in most countries on an annual basis. But the broadening commodity rally threatens to feed into global inflation and kickstart another bond selloff.

A year ago almost all aggregate (corporate + government) bond indices were on the back foot. But throw in a dash of optimism, a soupçon of disinflation and a helping of less hawkish central banks and almost all indices are up over the last year. Thailand and Israel’s indices are the only two real exceptions; the rest are higher by anywhere from 2% to over 10% in Poland and Hungary’s cases.  


Nvidia share split

Nvidia plans to do a 10-for-1 stock split “to make stock ownership more accessible to employees and investors”.  Shareholders of Nvidia as of the market close on June 6 will get nine additional shares, and those will be doled out after the close of trading on June 7.

Nvidia also is hiking its dividend by 150%. The new quarterly dividend will be 10 cents a share, up from 4 cents a share before. That boosted dividend is equivalent to 1 cent a share on a split-adjusted basis. It will be paid on June 28 to shareholders of record as of June 11.

Investors want to know how long cloud customers will keep spending up on Nvidia hardware at a rapid pace. While too early to tell, in our view, on timing of a potential peak in broader infrastructure spend, the scaling of recent large-scale models (we discussed this massive capex spend in a previous newsletter) coupled with NVDA’s Blackwell (their new platform announced in March) ramp in 2025 suggests to that we are likely to see meaningful growth well into next year.

55% to 60% of spending on Nvidia’s high-end H100 product and networking revenue came from big hyperscale cloud providers. In general, the shift from general purpose compute to accelerated compute represents the company’s most significant revenue and profitability growth opportunity over the next several years. Only time will tell, but so far so good.  



The S&P 500 seems to have pushed past it’s last all time high and is now officially in new territory. 80% of stocks are above their 200-day moving average making this uptrend broad based. It is interesting to note though that the equally weighted S&P 500 hasn’t made it past its previous all-time high.
The brief pause in markets as it was digesting an uptick in CPI has now ended and markets are now attempting to price in forward earnings. The lag recorded by the equally weighted index is in part due to tech-based companies carrying the same weighting as their other counterparts and hence their returns since the low in October 2023 are equally represented along with all other sectors. Look at the following table which shows the top 20 counters listed on the S&P500:

The largest weighting is carried by Microsoft, Apple and Nvidia, the poster child for AI development. Great quality companies like Berkshire Hathaway makes its appearance at 1.7% of the index but a star business like Costco is only weighted at 0.8%. Obviously, the rest of the counters (480 companies) make up the long extended tail of the index and has much less impact on the overall return of the index unless they form part of a sector which together with their competitors move the market due to a macro event. Now look at the returns of some of these counters since last October. The top 10 weighted companies have recorded an average gain of 50%. Poster child Nvidia recorded a gain of 135%. The top 10 have an average P/E of 45x amongst them (not in the table) and analysts are expecting that on average these counters will go forward in the next 12 months and record an average gain of 9.6%. That is if they can record the earnings that has been pencilled in.

Now if you look at the bottom 10 the average gain since Oct 2023 is at 18% with an average P/E ratio of 27x earnings. Here companies are more representative of the overall economy. Over the next 12 months analysts expect this stock grouping to rise by an average of 7.5% with both Tesla and Costco’s price targets lower than their current prices.

The return of the S&P500 is a lot more nuanced than most understand. ETF’s have probably muddied the water as they are indiscriminate buyers of the large weighters despite valuation. GMO, the international asset manager expect US Large cap companies to achieve a -4.1% real return over the next 7 years based upon their research. If this is true, then indiscriminate purchase of the index through ETF’s may prove to be a bad strategy. We will once again be in a world where stock pickers and analysts need to identify which counters to own and at what prices despite their weighting in an index. 

Author- Cobie Legrange



The Rand/Dollar closed slightly softer at R18.42 (R18.26, R18.43, R18.51, R19.09, R18.68, R18.99, R18.76, R18.72, R19.15, R19.30, R18.97, R19.03, R18.80,  R18.78, R19.03).   

The Rand/Pound is a tad softer at R23.46 (R23.11, R23.80, R23.22, R23.62, R23.61, R23.93, R23.90, R24.06, R24.18, R24.47, R23.61, R24.03, R23.87, R23.86, R24.15.)


The Rand/Euro closed the week down at R19.97 (R19.08, R19.86, R19.92, R20.35, R20.25, R20.56, R20.43, R20.47, R20.71, R20.93 R20.38, R20.51, R20.38, R20.40, R20.72.)


Brent Crude: Brent closed the week down at  $82.16 ($83.43, $82.73, $82.82,$87.39, $90.87, $86.58, $85.33, $81.80, $83.80, $83.40,$83.14 $80.91, $77.36, $83.66, $78.33.) Unless the price or exchange rate changes dramatically over the week we could see a drop in the price of petrol and diesel next month.


Bitcoin was up again at $69,391 ($66 328, $60,880, $63,154, $64,135, $68,804, $64,681, $69,078, $68,340, $62,315, $54,649, $52,510, $47,195, $ 42,897, $41,608, $41,680).  

Articles and Blogs: 

Taking a holistic view of your wealth NEW
Why do I need a financial advisor ? 
Costs Fees and Commissions 
The NHI and what do do about it 
New-Normal for Retirement? 
Locking-In Interest rates – The inflation story 
Situs – The Myths and Reality
Tax Residency – New Rules new headaches  Are retirement annuities dead 
A new look at retirement
Offshore investing – an unpopular opinion  

Cobie Legrange and Dawn Ridler, 
Rexsolom Invest, Licensed FSP 45521.