At the time of writing, the JSE top 40 index is up 9% year to date and a local feeder exchange traded fund that tracks the S&P 500 is down 6.6%. Not many people had this on their bingo card coming into 2025! Does this mean that the US market is down and out, while the JSE has suddenly found its groove?
No, not necessarily. It’s dangerous to take a short-term move and extrapolate it. If you zoom out and take a five-year view, which uses the start of Covid as its base, you’ll find that the S&P 500 feeder would be up 132% and the top 40 is up 100%. Yes, the gap was a lot bigger before the latest move, but that’s a meaningful difference.
Still, if you’re surprised by how “small” the gap in performance is between the two indices, remember that the JSE performance isn’t reflective of the on-the-ground reality for South Africans. The South Africa Inc stocks that are exposed to local economic trends have been way off the performance enjoyed by the likes of gold miners (gold has been shooting the lights out) or Naspers/Prosus with their exposure to China. The solid performance in 2025 on the JSE can be attributed to just a few sectors that happen to be strongly represented in the top 40 index, with the telecoms companies putting in a surprisingly strong performance as the best of the stocks that have regional consumer exposure.
Speaking of consumers, pressure in that sector has been a feature of both the US and the local markets in 2025. In South Africa, our retailers have suffered a sharp correction after enjoying a solid year in 2024 that was driven by hope for the GNU. In the US, valuations had run so hot after years of loose monetary policy and overly positive sentiment that at some point there was going to be trouble. Ironically, this trouble has come in the form of a campaign built around Make America Great Again!
Trump’s policies, specifically those related to tariffs, certainly aren’t making the Dow Jones US consumer goods index great again
President Donald Trump’s policies, specifically those related to tariffs, certainly aren’t making the Dow Jones US consumer goods index great again. This index has suffered a 9.9% drop year to date. Ditto the Nasdaq-100, where you’ll find the highest concentration of technology stocks, down 8.2%. Many of the tech stocks are prey to the same underlying risks as the consumer stocks are, such as demand for discretionary items. Sure, companies that find themselves in the consumer goods index might be selling those items, but they are advertising them on the technology platforms that have come to rely on extensive ad revenues. This is one of the reasons technology and consumer stocks have both had a rough time this year.
Another reason is that inflationary policies such as tariffs inevitably lead to interest rates being higher for longer. This affects valuations of equities, particularly when multiples in the US were way ahead of their medium-term, and certainly their long-term, averages. In both the consumer and technology sectors in that market, we’ve seen some eye-watering multiples that were hard (if not impossible) to justify. Even after the recent drop, many companies are still trading at inflated levels vs their averages. Mean reversion for traded multiples isn’t a perfect strategy, but it can keep you out of trouble.
If the headlines are anything to go by, the ugliness in US consumer stocks isn’t over yet. Trump’s economic policies are erratic and illogical, creating an environment of uncertainty for companies that have cross-border operations. Nike is just one example, down 14% this year and trading 35% off the 52-week high. The company is in the midst of a turnaround strategy that isn’t made any easier by tariffs, though it must be noted that Nike still has plenty of internal issues to sort out as well. Lululemon is also bleating about tariffs, with the share price down 23% this year after releasing a poor outlook last week. Ulta Beauty, down 16% year to date, also had plenty to say about tariffs.
Sentiment around US consumer stocks is extremely negative at the moment. It’s not much better in South Africa, especially as higher inflation (and thus interest rates) in the US inevitably means that the Reserve Bank will be nervous to cut rates. If the Bank surprises us with rate cuts that give local consumers a boost, then South African consumer stocks could outperform US peers this year. The safer approach is just to avoid the anguish on both sides of the pond, seeking opportunities in other sectors while things get shaken out in consumer stocks.
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