Are the stock markets rallying on thin ice? | Responsible Investor Weekly Newsletter, February 18th, 2023

Weekly summary in a paragraph

US stock markets stalled this week after last week’s decline. The inflation report published on Tuesday was basically in line with expectations while the January headline producer index came in hotter than expected and weighed the markets down on Thursday. The US terminal rate continues to creep up and the 2-10y inversion has reached 78 basis points. With this week, 82% of S&P500 companies reported earnings, with notable beats by Deere, Applied Materials and Autonation. So far Q4 2022 earnings have been sub-par but not disastrous, and a 50 basis points hike is back on the table. The European stock market continues to outperform the US stock market.

Asset classes weekly performance

This week the Dow finished -0.13% lower (+2.1% year to date) while the S&P500 decreased -0.3% (+6.2% year to date, we are 1 time short), the Nasdaq gained +0.6% (+12.6% year to date, we have a 3 times inverse position) and the Russell 2000 did better with a +1.4% appreciation (+10.5% year to date). Gold finished lower -1.21% (+0.95% year to date, we are long) while Silver was -1.14% weaker (-9.1% year to date, we are long). Oil tanked -3.8% (-4.4% year to date). The 10-y US treasury yield finished -0.4% lower (+0.9% year to date). The European stock market was strong with a +2.02% gain (+13.5% year to date). The Euro finished +0.18% higher against the US Dollar (-0.12% year to date).

Weekly pitch

After several weeks of somewhat unjustifiable gains, the US markets lost steam with a sharp loss two weeks ago and mixed results this past week. Recent economic data still do not provide confidence that inflation is under control and the prospect of a “higher for longer” Fed policy is more likely.

It is tempting to go all in when markets outperform but it is prudent to either keep profitable positions on a tight leash (do you use automatic sell stops and take profits like we do?) or have cash and hedges in one’s portfolio (see our portfolio asset allocation below). We have beaten the market again this week and are protected to the downside should there be more pain coming next week when the last significant batch of earnings are announced.

Weekly Portfolio Update

Here are this week’s movements: we took profits on Disney (+10.1%), Palantir (+6.8%) and Global Lithium ETF (+7.1%); take profits were triggered on our Snapchat, Ally Financial, and DFS short positions. Cash, precious metals and hedges amount to 40% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Campari +4.2% (Beverages alcoholic)

Essilor Luxottica +3.1% (Medical specialties)

Gap +2.8% (Apparel)

BorgWarner +2.7% (Trucks)

Louis Vuitton +2.5% (Luxury goods)

Portfolio Asset Allocation

US Long stock positions 46.5% (increased)

EU Long stock positions 10% (unchanged)

Short stock position 3.5% (reduced)

Hedges 7% (unchanged)

Silver & Gold 4% (unchanged)

Cash 29% (increased)

1-year Portfolio Performance

Our portfolio performance over the last year (12 months) is -2.6% (excl. dividends) vs the S&P500 loss of -6.9%, which corresponds to a +4.3% market beat.

…in case you missed it

Check out our first 2023 weekly newsletter to read the 5 things I got right in 2022…and the 5 I got wrong.


You can now listen to this newsletter on Apple Podcasts and Spotify.

Invest responsibly!!!


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