Monthly economic and market review: April 2024

“Hard-a-starboard” was the call from First Officer William Murdoch as he tried to steer the “unsinkable” Titanic away from the path of an iceberg around midnight on that fateful day in mid-April 1912. Nearly 1,500 lives were lost in the freezing cold Atlantic Ocean that night as the Titanic split in two and sank to the seabed four kilometres below. It took another 73 years before the ship was sighted again when the wreck of the Titanic was discovered by a Robert Ballad expedition in 1985. Our lifelong investment journey often feels similar as we start from our own “Southampton” and head for our “New York City”, not knowing what obstacles may lie in wait on that long-term voyage. We build our “unsinkable” investment portfolio and trust that it will get us to the end of our life’s journey not just in one piece, but in a better position than when we embarked on our investment travels. Even with a well-crafted investment vessel, we still need to keep an eye out for those unexpected dangers: a Steinhoff iceberg, a Saambou storm, a Tongaat tornado or an Enron earthquake. Staring out from the porthole, it’s unnecessary to change investment course at the sign of every wave, but it is important to understand your ship’s capabilities, the risks that it faces and when to move the rudder in a slightly different direction.

We set off on our April voyage of the markets feeling positive about the journey and aware of the risks of the first quarter earnings season in the US, the growing hawkishness of central bankers and the ongoing geopolitical tensions.

The European Central Bank (“ECB”) stuck to its guns and continued to telegraph a first rate cut in June but in the US, the Federal Reserve Bank (the “Fed”) continued its reticence to cut rates until inflation was on a much clearer path towards its 2.0% target. US treasury yields kicked up in April in sympathy (see table alongside) with the 2yr treasury trading 41 basis points (“bp”) higher and closing above 5% for the first time since November 2023. 10yr treasuries traded 48bp higher in the month as rate cut hopes faded. At month-end, the market had reduced its expectations to a 60% probability of a 25bp cut at the September meeting. At the time of writing, the Fed had held an uneventful 1 May meeting, leaving the market to focus on the next meeting in mid-June (and then Jul, Sep, Nov & Dec this year). As US corporate earnings season ramped up in April, the S&P 500 lost ground, dipping below the 5,000 level on 19 April and closing the month out at 5,036 points. This left the index down 219 points (4.2%) for the month but 5.6% higher for the year. The all-time high index level of 5,254 attained right at the end of March was never in any danger of being challenged during April (see the green line in the chart below).

The local market had a better month of it with the FTSE/JSE All share index gaining 2.1% in April to add to the 2.5% gain in March. The negative start in January and February, however, offset the March and April gains to leave the index down 1.1% for the year-to-date in rand terms (see the blue line in the chart below). The Resources (6.2%), Financials (0.8%) and Industrials (1.1%) sectors were all up in the month but it was the resources sector that led the market higher. Amidst heightened geopolitical tensions and central bank buying, the price of gold rose to a new high of $2,401/oz during April. Platinum prices improved modestly, coal, iron ore and crude oil prices held their levels while copper prices jumped 14%. This supported the resources market in April but the big kicker came from the unsolicited bid for Anglo American by the BHP Group. BHP has its eye on Anglo American’s copper assets in South America and the proposed deal (around £25 per Anglo share at the time) envisaged an unbundling of Kumba Iron Ore and Anglo Platinum to Anglo shareholders with the fate of De Beers still to be decided. The Anglo American board were quick to reject the offer as undervaluing the business but the advance by BHP could see other bidders such as Glencore emerge from the sidelines. Whichever way it plays out, a fire has been lit under Anglo American to realise the value of the business at a quicker pace. At the end of March, Anglo American was wallowing at R465 a share, down from a March 2022 peak of R829 a share. By the end of April, the share price had surged to R617 per share, for a gain over the month of 32.6%.

FTSE/JSE All Share index (blue, RHS) and S&P 500 index (green, LHS): 12 months to 30 Apr 24

Source: Factset

Potential corporate actions have also buoyed the prices of other counters on the JSE. An announcement by Barloworld in April that it was engaged in negotiations that could affect its share price saw the price jump 41.4% during April to leave the counter up 9.2% for the year. The share price of MultiChoice, an acquisition target of Canal+, jumped on the original offer of R105 per share earlier in the year but gained another 6% in April after the two parties agreed a R125 per share price tag. The Takeover Regulation Panel has granted the two parties an extension until 4 June to formally put the offer to MultiChoice shareholders. In the interim, Canal+ has been buying more shares in the market to take its stake in MultiChoice to around 42.5%. As per the table below, MultiChoice is up 48.7% for the year.

A corporate action is essentially also the reason that Life Healthcare topped the biggest losers list with a decline of 37.4% in April and a decline of 41.4% for the year. Life Healthcare disposed of its interest in Alliance Medical Group for a gross amount of £846m earlier in the year. After settling debt, paying transaction and hedging costs and retaining some proceeds towards the acquisition of the renal business of Fresenius Medical Care, Life Healthcare distributed R8.8bn to shareholders by way of a special dividend of R6.00 per share. The stock went ex-dividend on 3 April and so the large share price fall was captured during the month of April. Adding the R6.00 back to the closing price of 30 April gives a total price of R16.76 per share, a more modest decline of 8.8% from the price of R18.37 at the start of the year.

Despite the improvement in the platinum price over the month, the palladium price fell to be almost on par with that of platinum by month-end. These fundamentals may have impacted Anglo Platinum’s fortunes during the month but the share price soured somewhat after the market began contemplating what life for Angloplat would look like as a standalone entity outside of the Anglo American fold should it be unbundled from the group. Angloplat lost 13.9% in April to take its decline for the four months of 2024 to 31.4%.

During the course of April, the S&P 500 index declined by 4.16% with Utilities (+1.59%), Energy (-0.87%), Consumer Staples (-1.07%), Communication Services (-2.22%) and Industrials (-3.62%) outperforming the market. Underperforming sectors included Real Estate (-8.62%), Technology (-5.46%), Healthcare (-5.19%), Materials (-4.61%), Consumer Discretionary (-4.35%) and Financials (-4.31%). The table below highlights some of the bigger winners and losers from amongst the 100 largest companies in the S&P 500 in April and for the year-to-date (“YTD”). With Q1 earnings reporting season in full swing during April, the market found little patience for the stocks of companies that did not beat expectations on both the top and bottom lines and that were light on guidance.

Amongst the Magnificent Seven in April, Alphabet closed 8.1% higher, Tesla was up 4.3%, Apple lost 0.7%, Amazon gave up 3.0%, Nvidia was down 4.4%, Microsoft lost 7.5% and Meta closed 11.4% lower. While Nvidia tops the list of gainers this year with a 74.5% gain in four months and Micron Technology is up 32.4%, semiconductor stock Intel tops the losers list with a decline of 39.4% YTD. Intel’s share price had been on a slippery slope this year but the decline gathered momentum after the company segmented its earnings and showed that the foundry business (where the chips are made) was losing $7bn annually with no immediate signs of improvement. With numerous other quality avenues to play the semiconductor theme available to investors, Intel found little in the way of support from the market. The winning weight loss drug theme also continued strongly in the month with Eli Lily up 34% YTD and Novo Nordisk up 28.8% for the same period.

The quarterly earnings reporting season, which drives company-specific price movements, is coming to an end and we’ll soon be placing all of our attention back on the Fed for US market direction. The geopolitical tensions are still with us and the markets additionally have to absorb the political noise from the looming elections (domestically and abroad). The old market adage tells us to “sell in May and go away and don’t come back until St Leger Day” (in mid-September). If your investment vessel is seaworthy and fit for purpose then there’s never a need for such drastic action. Rather, man the crow’s nest and keep an eye out for opportunities. You never know when you might find one or two of those darling buds of May.