Has the Nasdaq just saved the stock market? | Responsible Investor Weekly Newsletter, March 18th, 2023

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 “Has the Nasdaq just saved the stock market?”, and was written on March 18th, 2023.

Weekly summary in a paragraph

The US stock market indices were mixed in a week which was dominated once again by the banking sector being under pressure despite notable interventions on First Republic in the US, and on Credit Suisse in Europe. The Nasdaq was very strong partly due to a golden cross finally forming on Wednesday, and joins all the other major US indices who already achieved the mother-of-all technical signals weeks or months ago. Europe experienced the second week of decline as the ECB raised interest rates by 0.5%, with more hikes seen ahead due to inflation still being high: this move may help the Fed justify at least a 0.25% hike at next Wednesday’s FOMC meeting. The 10-y yield staged a sharp reversal to the point that the 2-10y spread dropped to -42 basis points. In corporate news, Adobe and Fedex beat Q4 2022 estimates while Dollar General reported in-line.

Asset classes weekly performance

This week the Dow finished -0.15% lower (-3.9% year to date) while the S&P500 gained +1.43% (+2.0% year to date), the Nasdaq shot up +4.41% (+11.12% year to date) and the Russell 2000 lost -2.64% (-2.01% year to date, we have a 3x short position). Gold finished +4.33% higher (+7.07% year to date, we are long) while Silver gained +3.22% (-6.8% year to date). Oil tanked -7.0% (-14.15% year to date). The 10-y US treasury yield finished a whopping -6.68% lower (-10.49% year to date). The European stock market gave up -2.5% (+7.4% year to date). The Euro finished -0.12% lower against the US Dollar (-0.36% year to date).

Weekly pitch

I am fundamentally a value investor but like using technical analysis to guide entry/exit points in my positions from time to time. According to technical analysis a ‘golden cross’ occurs when the 50-day moving average crosses above the 200-day moving average. Many algorithms use this event as a prompt to buy an asset. Conversely, a ‘death cross’, ie when 50-day moving average crosses below the 200-day moving average, is seen as a bearish sign. As mentioned in the weekly summary, the Nasdaq finally saw a golden cross form this week, and is the last of the major US stock indices to do so after the Dow (mid December 2022), the Russell 2000 (late January 2023), and the S&P500 (early February 2023). The flows in equities were stable this week, and it is possible that had the Nasdaq not experience a golden cross the markets may have had another sharp decline.

Weekly Portfolio Update

Here are this week’s movements: we took profits on our Williams-Sonoma short position (+6.5%); we initiated new short positions on Adobe, Pinterest, Snapchat and Five Below. Cash, precious metals and hedges amount to 40% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

Newmont Mining Corp +14.26% (Precious metals)

ACI Worldwide +13.38% (Technology)

Google +12.58% (Technology)

Microsoft +12.41% (Technology)

Silver +9.38% (Precious metals)

Portfolio Asset Allocation

US Long stock positions 51% (increased)

EU Long stock positions 9% (unchanged)

US Short stock position 4.5% (increased)

Hedges 7.5% (increased)

Silver & Gold 5% (unchanged)

Cash 23% (reduced)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is -3.5% (excl. dividends) vs the S&P500 loss of -11.2%, which corresponds to a +7.7% 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.

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Is Silicon Valley Bank the new Lehman Brothers? | Responsible Investor Weekly Newsletter, March 11th, 2023

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 “Is Silicon Valley Bank the new Lehman Brothers?” and was written on March 11th, 2023.

Weekly summary in a paragraph

Last week’s rally already seems like a distant memory as US stock market indices tanked 4% or more this past week. Europe was no different as were most indices around the globe. The bank sector was hit the most as the Silicon Valley Bank seizure constitutes the first major bank failure since the Great Financial Crisis in 2008 and spreads contagion fears. To make things worse, the jobs report published on Friday came in hotter than expected with the only glimmer of hope consisting in a slightly softer average hourly cost. Money is flowing from the stock market to bonds and this is sending yields lower. The news of Xi’s re-election in China did not provide anything incremental. In Europe the ECB confirmed its resolve to ramp up Quantitative Tightening this summer with the terminal rate now expected at 3.75%.

Asset classes weekly performance

This week the Dow finished -4.4% lower (-3.7% year to date) and the S&P500 lost -4.55% (+0.6% year to date), the Nasdaq gave up -4.7% (+6.4% year to date) and the Russell 2000 tanked -8.1% (+0.7% year to date). Gold finished higher +0.98% (+0.57% year to date) while Silver lost -2.51% (-15.6% year to date). Oil was -4.7% weaker (0.8% year to date). The 10-y US treasury yield finished -7.23% lower (-2.58% year to date). The European stock market gave up -3.1% (+10.1% year to date). The Euro finished +0.15% higher against the US Dollar (-0.64% year to date).

Weekly pitch

Investors were spooked by the concerns over a classic run on the bank at retail investor-darling SVB Financial Group. Its size is too small to be compared to the Lehman Brothers, however, perhaps a more appropriate comparison would be with Bear Sterns whose fall was the notable predecessor of the GFC. It is too early to assess how far the impact of this failure will affect the sector. Useful signs may come from the US regional banks who are smaller in size compared to the likes of Goldman Sachs and JP Morgan. Certainly the mismatch between bank assets and liabilities in terms of duration is a key concern. Should the contagion spread, the Fed would have no choice but to lower interest rates to relieve the pressure on the credit market. Next week the all-important CPI and PPI reports are due which will provide a further update on the direction of inflation. We beat the market by 2% this week thanks to our hedges and are now 9.4% ahead of the S&P500 over the last 12 months.

Weekly Portfolio Update

Here are this week’s movements: we took profits on Alcoa (+9.3%) and Old Republic International (+12.6%) as well as on our short position in Johnson & Johnson (+5.8%); we initiated new long positions on an Healthcare ETF and a US Banks ETF (we always start with 0.5% of our portfolio and then add to it if the stock goes up); sell stops were triggered on our Snap short position and on Thor Industries. Cash, precious metals and hedges amount to 42% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Proshares UltraPro Short Russell 2000 ETF +27.39% (3 times inverse the Russell 2000)

iPath Series B S&P500 VIX ETF +21.40% (Volatility ETF)

Proshares UltraPro Short Nasdaq ETF +11.84% (3 times inverse the Nasdaq)

Proshares Short S&P500 ETF +4.77% (1 time inverse the S&P500)

Proshares Short Nasdaq ETF +3.81% (1 time inverse the Nasdaq)

Portfolio Asset Allocation

US Long stock positions 49% (reduced)

EU Long stock positions 9% (increased)

Short stock position 2.5% (unchanged)

Hedges 6.5% (unchanged)

Silver & Gold 5% (increased)

Cash 28% (reduced)

1-year Portfolio Performance

Our portfolio performance over the last year (12 months) is +0.1% (excl. dividends) vs the S&P500 loss of -9.3%, which corresponds to a +9.4% 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.

Invest responsibly!!!

Is this week’s rebound short-lived? | Responsible Investor Weekly Newsletter, March 4th, 2023

Weekly summary in a paragraph

After three weeks of decline the US stock markets finally changed direction despite it being a relatively uneventful week. The terminal rate is now seen at 5.50% and two Fed members effectively cancelled each other out by speaking in favour of and against a higher that 0.25% increase at the late March FOMC meeting. Notable companies reporting earnings last week included Macy’s and Broadcoam who beat estimates and Lowe’s which missed. The Tesla investor day underwhelmed despite sparking some interest in the sharp cost reduction programme for one if its models. Renewed optimism on China reopening pushed oil and copper higher. The European stock market finished also higher and continues to outperform the US stock market since last October.

Asset classes weekly performance

This week the Dow finished +1.75% higher (+0.7% year to date) and the S&P500 rose +1.9% (+5.4% year to date), the Nasdaq gained +2.6% (+11.7% year to date) and the Russell 2000 appreciated +2.0% (+9.5% year to date). Gold finished higher +2.08% (+0.04% year to date) as did Silver which rose +2.05% (-13.1% year to date). Oil was strong and gained +5.51% (+3.34% year to date). The 10-y US treasury yield finished +1.07% higher (+4.51% year to date). The European stock market gained +3.2% (+9.6% year to date). The Euro finished +0.76% higher against the US Dollar (-0.70% year to date).

Weekly pitch

Investors should always be cautious when markets trade higher on a “slow news” week as this may just be retail investors taking over while institutional investors wait for a reason to sell or buy. Next week is a lot more economic data heavy and sometimes the best strategy is to be passive, at least in the short term. That is why you will see later in the newsletter that this week’s portfolio movements are minor. In other words we remain reasonably cautious thanks to our cash and hedges and are not prepared to go all in. In fact, we would always retain some cash in our portfolio, in order to take advantage of buying opportunities that may present themselves, as well as hedges, which protect you in rainy days. Hedges are the reason we did not beat the market this past week but they are also the reason we have been beating the market over the past year, check out our portfolio allocation and performance further below.

Weekly Portfolio Update

Here are this week’s movements: we initiated new long positions on Range Resources and Sanofi; sell stops were triggered on our Dexcom short positions. Cash, precious metals and hedges amount to 41% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

Callum Petroleum +10.37% (Oil)

Freeport McMoRan +9.63% (Copper)

Meta +8.72% (Internet and content information)

Denbury Resources +6.24% (Oil & Gas)

Google +5.23% (Internet and content information)

Portfolio Asset Allocation

US Long stock positions 49.5% (increased)

EU Long stock positions 7% (reduced)

Short stock position 2.5% (increased)

Hedges 6.5% (reduced)

Silver & Gold 4.5% (unchanged)

Cash 30% (reduced)

1-year Portfolio Performance

Our portfolio performance over the last year (12 months) is +0.4% (excl. dividends) vs the S&P500 loss of -7.3%, which corresponds to a +7.7% 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.

Podcasts

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Invest responsibly!!!

Is the old adage “Don’t fight the Fed” still relevant? | Responsible Investor Weekly Newsletter, February 25th, 2023

Weekly summary in a paragraph

Third week of weakness for the US stock markets which finished markedly lower, partly fuelled by hotter than expected inflation data. The FOMC minutes did not provide any incremental news though there is still uncertainty about the size of the rate hike for the next meeting. While there are still notable companies reporting earnings next week, with this week most of S&P500 companies have archived Q4 2022 and analysts are looking to 2023 and especially 2024 forecasts. It is worth noting that earnings have shrunk year on year. The China reopening optimism seems to have cooled off somewhat. The European stock market was also weak, though it continues to outperform the US stock market since last October.

Asset classes weekly performance

This week the Dow finished -2.6% lower (-1.0% year to date) while the S&P500 decreased -2.9% (+3.4% year to date, we are 1 time short), the Nasdaq lost -3.9% (+8.9% year to date, we have a 3 times inverse position) and the Russell 2000 did slightly with a -2.7% depreciation (+7.3% year to date). Gold finished lower -1.33% (-2.4% year to date, we are long) while Silver tanked -5.3% (-14.5% year to date, we are long). Oil finished marginally higher +0.1% (-1.1% year to date). The 10-y US treasury yield was -0.15% lower (+4.1% year to date). The European stock market gave up -3.2% (+9.6% year to date). The Euro finished -1.28% lower against the US Dollar (-1.52% year to date).

Weekly pitch

“Don’t fight the Fed” is one of those evergreen expressions used by investors, especially those operating in the US stock market. In a nutshell, it means to align one’s investment strategies to the Fed policies in terms of interest rates, economic growth and price stability.

Interest rates are particularly important for the so-called “long duration” stocks, ie companies who are yet to return a profit and therefore borrow heavily to fund research or the assets they need to grow their business. Last year, interest rates skyrocketed and this adversely impacted tech stocks which is the main reason why the Nasdaq tanked and underperformed the Dow, which consists of value companies that are profitable now. While the answer to the question in this week’s newsletter title depends on the type of investor, today more than ever the old adage holds true.

We have beaten the market for the third week in row and are protected to the downside should there be more pain coming next week.

Weekly Portfolio Update

Here are this week’s movements: we took profits on NXPI (+4%), a bank ETF (+10%), a US Technology ETF (+10%) and Louis Vuitton (+12%); take profits were triggered on our Macy’s, Autonation, Intel and Tandem Diabetes Care short positions. We initiated new long positions on two European stocks. Cash, precious metals and hedges amount to 42% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Proshares UltraPro Short Nasdaq ETF +9.64% (3 times inverse the Nasdaq)

Proshares UltraPro Short Russell 2000 ETF +8.99% (3 times inverse the Russell 2000)

Callum Petroleum +5.98% (Oil)

iPath Series B S&P500 VIX ETF +4.97% (Volatility ETF)

Proshares Short Nasdaq ETF +3.22% (1 time inverse the Nasdaq)

Portfolio Asset Allocation

US Long stock positions 47.5% (increased)

EU Long stock positions 9% (reduced)

Short stock position 1.5% (reduced)

Hedges 6.5% (reduced)

Silver & Gold 4.5% (increased)

Cash 31% (increased)

1-year Portfolio Performance

Our portfolio performance over the last year (12 months) is -3.8% (excl. dividends) vs the S&P500 loss of -7.4%, which corresponds to a +3.6% 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.

Podcasts

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Invest responsibly!!!

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.

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Please donate for the earthquake in Turkey | Responsible Investor Weekly Newsletter, February 11th, 2023

With such a devastating force of nature and ailing shelters, the havoc wreaked in Turkish left at least 23,000 dead, with the count only poised to grow in the coming days. With news like these nothing financially relevant seems relevant, really. So read what follows lightly and make your hearts heavy with grief for those who fell. Donate if you can.

Weekly summary in a paragraph

US stock markets finished lower on Friday after a 3-week and a 6-week rise for the S&P500 and the Nasdaq, respectively. Value continues to underperform relative to growth. Oil higher mostly due to Russia cutting production by 0.5M barrels. The terminal rate is now expected at 5.15% from 4.9% last Thursday. The 2-10y inversion has reached 80 basis points. Economic data published this week threw a spanner in the works of the disinflationary path: it is very difficult to go from 4 to 2% and the Fed does not seems to backtrack from its 2% target. In corporate news, Disney earnings beat expectations on a cost cutting programme while Google got clobbered by losing an AI competition.

Asset classes weekly performance

This week the Dow finished -0.17% lower (+2.2% year to date) while the S&P500 did worse with a -1.1% decrease (+6.5% year to date, we are 1 time short), the Nasdaq tanked -2.4% (+12.0% year to date, we have a 3 times inverse position) and the Russell 2000 lost as much as -3.4% (+9.0% year to date). Gold finished lower -0.1% (+2.2% year to date, we are long) while Silver was -1.6% weaker (-8.8% year to date, we are long). Oil jumped +8.4% (-0.7% year to date). The 10-y US treasury yield jumped +1.9% this week (-1.3% year to date). The European stock market gave up -1.8% (+11.3% year to date). The Euro finished -1.1% lower against the US Dollar (-0.3% year to date).

Weekly pitch

It was too good to be true, wasn’t it? And often when things are too good to be true they just aren’t. The Nasdaq failed to add a 7th week of consecutive gains and retraced after having delivered what were basically a year’s worth of gains in the first 40 days of 2023.

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 this week and are protected to the downside should there be more pain coming next week when the January CPI is announced.

Weekly Portfolio Update

Here are this week’s movements: we took profits on Nucor (+9.3%), Qualcomm (+3.2%) and Global Lithium ETF (+7.9%); take profits were triggered on our Pinterest, Peloton, SL Green Realty and Semrush Holdings short positions. Cash, precious metals and hedges amount to 39.5% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

ProShares UltraPro Short Russell 2000 +10.8% (3x inverse Russell 2000)

Vix short-term S&P500 future +7.5% (Volatility)

ProShares UltraPro QQQ +6.4% (2x inverse Nasdaq)

Denbury +4.3% (Oil)

Callon Petroleum Company +4.0% (Oil)

Portfolio Asset Allocation

US Long stock positions 44% (reduced)

EU Long stock positions 10% (unchanged)

Short stock position 6.5% (unchanged)

Hedges 7% (unchanged)

Silver & Gold 4% (unchanged)

Cash 28.5% (increased)

Year to date Portfolio Performance

Our year to date portfolio performance is +4.7% (excl. dividends) vs the S&P500 gain of +6.5%.

…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.

Podcasts

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Invest responsibly!!!

Apple, Google, Amazon and Microsoft disappoint: who is left to save the earnings season? | February 4th, 2023 Newsletter

Weekly summary in a paragraph

Fifth straight week of upside for the Nasdaq despite most of the Q4 earnings reports from the major tech stocks disappointed, the exception being Meta (which we own). Ford, Qualcomm and Starbucks also missed. The Fed confirmed the expected quarter point rate hike on Wednesday and Powell came across as relatively dovish during the press conference. The most notable data point of the week was the January nonfarm employment which was up 517k vs 190k consensus – a clear underestimation, which would suggest continued strength in the job market and brings the unemployment down to 3.4% (vs 3.6% expected). More than half of the S&P500 companies are yet to report: the next two weeks will be key to assess the extent of the year on year earnings decline for Q4.

Asset classes weekly performance

This week the Dow finished -0.1% lower (+2.4% year to date) while the S&P500 did better with a +1.6% increase (+7.7% year to date, we are 1 time short), the Nasdaq gapped +3.3% higher (+14.7% year to date, we have a 3 times inverse position) and the Russell 2000 gained +3.9% (+12.7% year to date). Gold finished lower -3.2% (+4.0% year to date, we are long) while Silver was -5.1% weaker (-6.7% year to date, we are long). Oil tanked -7.8% (-4.6% year to date). The 10-y US treasury retraced -0.3% this week (-6.9% year to date). The European stock market gained +0.9% (+13.3% year to date). The Euro finished +0.7% higher against the US Dollar (+0.82% year to date).

Weekly pitch

Investors have finally been able to catch a breath after a very positive January. Given the steep climb of these first 5 weeks of 2023, particularly for long-duration tech stocks, one wonders whether the Nasdaq has gone up too quickly. Despite finishing up again this week, the fact that all the four biggest tech companies have disappointed is weakening the bullish sentiment in the Nasdaq, at least in the short term.

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 sell stops and take profits like we do?) or have cash and hedges in one’s portfolio (see our portfolio asset allocation below).

Weekly Portfolio Update

Here are this week’s movements: we took profits on Newmont Mining (+13%) and Amazon (+8%); partial sell stops were triggered on our Intel, Mattel, Oak Street Health and Williams-Sonoma short positions. Cash, precious metals and hedges amount to 37% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

Meta +24.4% (Social media/Tech)

Gap +12.12% (Retail trade)

Thor +11.04% (Recreational products)

Orsted +8.18% (Utilities, Green Power)

NXPI +8.05% (Semiconductors)

Portfolio Asset Allocation

US Long stock positions 47% (unchanged)

EU Long stock positions 10% (unchanged)

Short stock position 6.5% (increased)

Hedges 7% (reduced)

Silver & Gold 4% (unchanged)

Cash 26% (reduced)

Year to date Portfolio Performance

Our currency-adjusted year to date portfolio performance in Euro is +4.51% (excl. dividends) vs the European market gain of +12.51% and +5.6% in US Dollars vs the S&P500 gain of 7.7%.

…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.

Podcasts

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Invest responsibly!!!

If you are getting excited about 2023, read on | January 28th, 2023 Newsletter

Weekly summary in a paragraph

Another positive week for the stock markets around the world. In the US this was helped by positive data points in terms of Personal Consumption Expenditure (PCE), which came in at 0.1%, slowest rise since 2021; the US Q4 GDP increased at an annual rate of 2.9% in the fourth quarter of 2022, after increasing 3.2% in Q3. Bank of Canada is the first to pivot on the tightening policy: who will it be next? Notable Q4 earnings this week included Visa beating and guiding higher (we are long) and Intel which reported disastrous results (we are long two other semiconductors which a leading sector in the market). Looking at quarters and calendar years is arbitrary: if one focuses on the last three months, ie since the cycle lows, the European stock market has outperformed the US indices by 27% (currency adjusted): is your portfolio sufficiently exposed to the European market?

Asset classes weekly performance

This week the Dow finished +1.8% higher (+2.2% year to date) while the S&P500 did better with a 2.5% increase (+2.2% year to date, we are 1 time short), the Nasdaq gapped +4.3% higher (+10.0% year to date, we have a 3 times inverse position) and the Russell 2000 gained +2.4% (+7.2% year to date). Gold finished higher +0.4% (4.4% year to date, we are long) while silver was -2.1% weaker (-3.7% year to date, we are long). Oil was lower -3.4% (+1.0% year to date). The 10-y US treasury advanced +0.2% this week (+3.7% year to date). The European stock market gained +1.0% (+10.1% year to date). The Euro was only +0.1% higher against the US Dollar (1.5% year to date).

Weekly pitch

January is likely to finish with a positive print. But is this impressive rally a bull trap? As interest rates eased, long-duration stocks thrived in these first weeks of 2023 trading due to the P/E multiple expansion. In other words, borrowing money has become cheaper and with the E part of that ratio, ie the Earnings, being substantially unchanged, the P part, ie the Price, has gone up. There is a lot more uncertainty on the earnings side going forward: any sign of weakness in the Q4 earnings expected this week may trigger a sell-off, which is why prudent investors are better off not being fully invested and having cash and hedges in their portfolio (see our portfolio asset allocation below).

Weekly Portfolio Update

Here are this week’s movements: we took partial profits on Qualcomm (+11.53%); sell stops were triggered on our Shopify, Discovery Financial Services and Signet Jewelers short positions. Cash, precious metals and hedges amount to 39% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Global X Lithium & Battery Tech ETF +8.93% (Lithium ETF)

Meta +8.88% (Social media/Tech)

Nucor +8.73% (Steel)

Qualcomm +8.54% (Semiconductors)

Old Republic International +8.48% (Finance/Specialty Insurance)

Portfolio Asset Allocation

Long stock positions 57% (unchanged)

Short stock position 4% (reduced)

Hedges 8% (unchanged)

Silver & Gold 4% (unchanged)

Cash 27% (increase)

Year to date Portfolio Performance

Our currency-adjusted year to date portfolio performance in Euro is +2.9% (excl. dividends) vs the European market gain of +10.1% and +4.4% in US Dollars vs the S&P500 gain of 2.2% (a +2.2% 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.

Podcasts

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Invest responsibly!!!

Why lower highs are bad news | January 21st, 2023 Newsletter

$QQQ $RTX $CPR.MI $SAND.ST $AMZN WSM $CALM $NVDA $KBE $CSCO $DEN $LIT $QCOM $BRK.B $NUE $DIS $THO $MP $KSS $GL $WMT $TGT $GILD $ORI $CNC $SH $GLD $SLV $SON $NEM $HLT $NXPI $DEN $GPS $JPM $CMG $MSFT $META $BWA $LEA $PSQ $SRTY $SQQQ

Weekly summary in a paragraph

The US stock market was a mixed bag, as the Nasdaq rise for the third week in a row was offset by a weaker S&P500 and a tanking Dow Jones. Europe still looks strong, despite this week’s mild decline. The Bank of Japan continues to be unwilling to change its monetary expansion policy. The second week of Q4 earnings only saw a relatively small number of reports, including the surprise beat by $NFLX: next week will be more telling as the large tech stocks report. In other corporate news, $GOOG joined its predecessor tech giants in cutting a significant amount of its workforce. While investors focus on the savings that such companies may benefit from, they often ignore that unemployment leads to less spending, hence revenue contraction.

Asset classes weekly performance

This week the Dow tanked -2.4% (+0.4% YTD) while the S&P500 did better with only a -0.7% retracement (+2.6% YTD, we are 1x short), the Nasdaq finished +0.7% higher (+5.5% YTD, we have a 3x inverse position) and the Russell 2000 lost -0.8% (+4.6% YTD). $Gold finished higher +0.7% (4.5% YTD, we are long) while silver was -0.6% weaker (-2.2% YTD, we are long). $Oil was mildly higher +0.7% (+3.5% YTD). The 20-y advanced +0.3% this week (+4.1% YTD). The European stock market lost -0.5% (+9.0% YTD). The Euro gave up -0.1% against the USD (1.4% YTD).

Weekly pitch

Investors are better equipped when they rely on both valuation and momentum – that’s to say whether a stock is supported by fundamentals and is liked by the market such that it has more buyers than sellers. Many believe that the Nasdaq has bottomed for this cycle: this argument is sustained by the 3-week upside which started at the turn of the year. However, from a technical analysis standpoint, both the S&P500 and the Nasdaq have continued to make lower highs since their respective all time highs in late 2021. Both these indices are yet to see a golden cross form (ie the 50-day moving average cross above the 200-day moving average). Conversely, the Dow and the Stoxx index have experienced both higher highs and a golden cross: in the short term there may be more justification for these indices to move higher thanks to their underlying stocks belonging to the real economy as opposed to the long-duration, tech firms which represent the lion share of the S&P500 and even more so of the Nasdaq.

Weekly Portfolio Update

Here are this week’s movements: we started a long position in $RTX and $CPR.MI; accumulated on $EL.PA and $SAND.ST (which reported a Q4 earnings beat); took profits on $AIG (+19.66%), $USB (+10.96%), $VWS.CO (+5.31), and $GIS (+6.8%); and initiated a sell position on $M, $QQQ and $DFS; while a SL was triggered on our $SI and $LEN short position. Cash, precious metals and hedges amount to 37% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

$GOOG +6.98% (Technology-Internet)

$CPE +6.23% (Oil)

$CSCO +4.30% (Technology, short position)

$DIS +4.10% (Media-Diversified)

$SRTY +3.20% (3x inverse Russell 2000)

Portfolio Asset Allocation

Long stock positions 57% (increased)

Short stock position 6% (reduced)

Hedges 8% (unchanged)

Silver & Gold 4% (unchanged)

Cash 25% (reduced)

YTD Portfolio Performance

Our currency-adjusted YTD portfolio performance in Euro is +2.0% (excl. dividends) vs the European market gain of +6.4% and +3.40% in USD vs the S&P500 gain of 2.9% (a +0.5% market beat).

…in case you missed it…

Check out last week’s newsletter to read the 5 things I got right in 2022…and the 5 I got wrong.

Invest responsibly!!!

Why this earnings season is key to predict 2023 | January 14th, 2023 Newsletter

$AMZN $ACIW $WWE $SLG $WSM $VWS.CO $CALM $NVDA $GIS $KBE $CSCO $DEN $LIT $QCOM $BRK.B $SIG $NUE $DIS $THO $MP $KSS $GL $WMT $TGT $GILD $AIG $ORI $USB $CNC $SH $GLD $SLV $SON $NEM $HLT $NXPI $DEN $GPS $JPM $CMG $MSFT $META $BWA $LEA $PSQ $SRTY $SQQQ

Weekly summary in a paragraph

Second week of upside in a row in this 2023 as last Thursday’s CPI report pleased more the bulls than it did the bears. Despite the disinflation narrative, China re-opening and more resilient than expected European market, the positive sentiment does not seems entirely justifiable.

The first Q4 earnings reports have started to come in, traditionally kicked off by the major US banks, which mostly surprised and finished higher in the Friday session as well as for the week. While the P/E multiple might have contracted as much as it will for this cycle, the fate of earnings is much more uncertain and it is therefore key to closely watch the Q4 earnings results and forecasts for any sign of weakness.

Asset classes weekly performance

This week the Dow gained +2.0% (+3.6% YTD) while the S&P500 did better with a +4.1% jump (+4.4% YTD, we are 1x short), the Nasdaq finished +4.8% higher (+6.6% YTD, we have a 3x inverse position) and the Russell 2000 gapped up +5.3% (+7.6% YTD). $Gold finished higher +2.9% (5.4% YTD, we are long) while silver was +1.8% stronger (+1.5% YTD, we are long). $Oil rebounded +8.5% (1.4% YTD). The 20-y advanced +1.5% this week (+6.8% YTD). The European stock market beat the main US stock market indices and gained +5.2% (+10.8% YTD). The Euro gave up 1.8% against the USD (1.2% YTD).

Weekly pitch

Stocks follow earnings and earnings expectations. If the earnings of a publicly listed company grow, so does its stock price. That is why the bull market which started in March 2009 and lasted 10+ years: in fact the S&P500 average earnings bottomed back then and have grown year on year. The spanner in the works of this more than decade-long favourable trend has been the sudden rise of interest rates, which has contracted the P/E multiple: that is the main reason why the major stock markets around the world entered into bear market territory in 2022. With the FED expected to soon pivot to a more dovish (or less hawkish) monetary policy, all eyes are now on earnings, especially for 2024 because the markets are forward looking: should the earnings continue to grow, a new bull market will be born; else there will be more pain ahead for investors putting their money to work on the long side.

Weekly Portfolio Update

Here are this week’s movements: we started a position in $AMZN and $ACIW, took partial profits on $PSQ (+5.1%), took profits on $BSX.US (+9.41%), reduced our hedge position in $SH (+3.3%), and initiated a sell position on $WWE and $SLG while a SL was triggered on our $SIG short position. Cash, precious metals and hedges amount to 38% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

$CPE +10.61% (Oil)

$THO +10.19% (Consumer durables, recreational products)

$GPS +9.59% (Apparel of footwear retail)

$NUE +9.47% (Steel)

$CMG +8.75% (Restaurants)

Portfolio Asset Allocation

Long stock positions 54% (reduced)

Short stock position 8% (increased)

Hedges 8% (reduced)

Silver & Gold 4% (unchanged)

Cash 26% (increased)

YTD Portfolio Performance

Our currency-adjusted YTD portfolio performance in Euro is +2.43% (excl. dividends) vs the European market gain of +9.6% and +3.63% in USD vs the S&P500 gain of 4.4%.

…in case you missed it…

Check out last week’s newsletter to read the 5 things I got right in 2022…and the 5 I got wrong.

Invest responsibly!!!