Responsible Investor is a weekly newsletter and an Apple/Spotify podcast for those who are interested in investing responsibly. Go to responsibleinvestor.dk for more information and to read our disclaimer. This week’s newsletter is titled “Declining earnings alert!”, and was written on April 1st, 2023.
Weekly summary in a paragraph
The US stock market indices rallied this week, enough that they all finished positive for the quarter. The Nasdaq had the best quarter since 2020. The European stock market staged an even stronger gain and has now more than doubled its year to date return compared to the US stock market; in fact, since the mid-October 2022 bottom, the European stock market is up 36% versus a 10% gain by the S&P500. The PCE core inflation data published on Friday was slightly softer than expected, which helped the rally. Next week more economic data are due, including the ISM manufacturing on Monday and the ISM services on Wednesday. The banking sector borrowing continued and so did outflows in deposits, albeit at a slower pace than in recent weeks. The 2-10y spread reversed and reached -58 basis points, corresponding to a 20 basis points drop: these are not small changes. In corporate news, both Electronic Arts and Roku announced cuts of their respective workforce by 6%.
Asset classes weekly performance
This week the Dow finished +3.22% higher (+0.38% year to date) while the S&P500 gained +3.48% (+7.0% year to date), the Nasdaq rose +3.37% (+16.8% year to date) and the Russell 2000 appreciated +3.89% (+2.34% year to date). Gold finished -0.1% lower (+4.9% year to date, we are long) while Silver gained +4.71% (-0.7% year to date). Oil was +3.97% higher (-2.11% year to date). The 10-y US treasury yield lost -0.96% (-7.88% year to date). The European stock market gained +5% (+16.2% year to date). The Euro finished +0.64% higher against the US Dollar (+1.3% year to date).
Stock prices follow earnings and earnings expectations. Analysts continuously track earnings forecasts for all S&P500 companies: this enables to determine a bottom-up target price for the index. Over the past 3 months, the 2023 S&P500 target price has declined and is now 221.5$; with a current price of 4040$, the P/E multiple of the S&P500 is just over 18. According to Facset, the cut in the forecasted Q1 2023 earnings per share is the largest recorded in the 5-year, 10-year, 15-year and 20-year average. The earnings decline and the credit crisis are two reasons to stay nimble if you are invested in the stock market. In order to protect yourself on the downside, responsible investors should raise cash, buy hedges (including precious metals and carefully selected corporate bonds) and be well-diversified.
Weekly Portfolio Update
Here are this week’s movements: we initiated a new short position on Dexcom. Cash, precious metals and hedges amount to 39.5% in our portfolio (unchanged compared to last week).
Top 5 Weekly Portfolio Performers
Gap +11.56% (Retail)
Sandvik +9.74% (Construction Machinery)
Denbury Resources +8.57% (Oil)
Freeport McMoRan +7.63% (Non energy minerals)
World Wresting Entertainment +7.43% (Consumer services)
Portfolio Asset Allocation
US Long stock positions 51.5% (unchanged)
EU Long stock positions 9% (unchanged)
US Short stock position 3.5% (increased)
Hedges 7.5% (unchanged)
Silver & Gold 5% (unchanged)
Cash 23.5% (reduced)
1-year Portfolio Performance
Our portfolio performance over the last 12 months is -2.4% (excl. dividends) vs the S&P500 loss of -9.3%, which corresponds to a +6.9% market beat.