Was this week’s rally justified? | Responsible Investor Weekly Newsletter, November 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 “Was this week’s rally justified?”, and was written on November 11th, 2023.

Weekly summary in a paragraph

The US stock market indices were mostly higher this week, despite somewhat hawkish commentary from chair Powell and a weak US bond auction. Small caps lagged and which finished significantly lower. The European stock market managed to stay afloat despite more companies missing earnings estimates and warning about lower full-year profits. The 2-10y spread continues to widen this week after the trend reversal experienced in late October and is still inverted at -41 basis points. There was nothing incremental in terms economic data. In corporate news, Disney and Gilead Sciences published strong earnings reports while The Trade Desk disappointed. Next week more Q3 earnings will come in, as companies such as Home Depot, Target, Palo Alto Networks, Applied Materials and The Gap report.

Asset classes weekly performance

This week the Dow finished +0.7% higher (+3.4% year to date) while the S&P500 gained +1.3% (+15.0% year to date), the Nasdaq rose +2.4% (+31.8% year to date) and the Russell 2000 gave up -3.2% (-3.2% year to date). Gold slid -2.2% (+0.9% year to date) while Silver tanked -4.0% (-11.2% year to date). Crude Oil dropped -4.3% (+3.2% year to date). The 10-y US treasury yield lost -0.7% (+22.0% year to date). The European stock market gained +0.9% (+11.6% year to date). The Euro lost -0.43% against the US Dollar (-0.22% year to date).

Weekly pitch

It was not a very convincing week as the markets rallied with no significant news to justify the move. In fact, hawkish statements by Powell and a poor auction would have suggested a drop from last week’s levels. From a technical perspective, the Dow is very close to a death cross and if the S&P500 and the Nasdaq are not able to keep up the recent momentum, they too will be in a similar position. Next week the all-important CPI and PPI reports will be published: these have the potential to be market movers and are closely watched by the Fed who, together with labour market report, use this data to define their monetary policy. Responsible Investors should exercise caution and maintain a healthy proportion of their portfolio in cash and hedges as well as a diversified portfolio with some exposure to the European stock market and to emerging markets.

Weekly Portfolio Update

Here are this week’s movements: stop losses were triggered on our Denbury Resources long position and on our XPO Logistics short position. Cash, US treasury bills, precious metals and hedges amount to 37% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

ProShares UltraPro Short Russell 2000 +9.6% (3 times inverse the Russell 2000 ETF)

ACI Worldwide +8.3% (Tech)

VanEck Vectors Semiconductor ETF+5.2% (Semiconductors ETF)

Meta +4.5% (Tech)

Rational AG +4.5% (Industrial Machinery)

Portfolio Asset Allocation

US stocks long positions 49.5% (reduced)

EU stocks long positions 8.5% (unchanged)

Emerging markets long positions 5.0% (unchanged)

US stocks short positions 0% (reduced)

Hedges 7.5% (unchanged)

Silver & Gold 2.5% (unchanged)

US Treasury bills 2% (unchanged)

Cash 25.0% (increased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +4.5% (excl. dividends) vs the S&P500 gain of +11.6%.

Invest responsibly!!!

What caused the big rally on Friday? | Responsible Investor Weekly Newsletter, October 7th, 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 “What caused the big rally on Friday?”, and was written on October 7th, 2023.

Weekly summary in a paragraph

The US stock market indices were mixed this week, as US treasury yields kept rising while the recently strong oil prices fell substantially. The European stock market managed to stay afloat and was helped by the first signs of dollar weakening in weeks. The 2-10y spread tightened significantly this week and is still inverted at -30 basis points. In economic data, there were strong job reports on Tuesday and Friday as well as ISM non-manufacturing data almost in line. In corporate news, McCormick and Levi’s published disappointing earnings reports while Constellation Brands beat expectations. Next week the first significant batch of Q3 earnings will come in, as large US banks such as JP Morgan, Wells Fargo and Citi report.

Asset classes weekly performance

This week the Dow finished -0.3% lower (+0.8% year to date) while the S&P500 gained +0.5% (+12.2% year to date), the Nasdaq rose +1.6% (+28.3% year to date) and the Russell 2000 gave up -2.2% (-0.9% year to date). Gold finished -1.0% lower (flat year to date) while Silver lost -3.0% (-10.4% year to date). Crude Oil tanked -6.8% (+9.8% year to date). The 10-y US treasury yield rose +2.2% (+26.1% year to date). The European stock market was barely higher at +0.1% (+8.7% year to date). The Euro gained +0.26% against the US Dollar (-1.10% year to date).

Weekly pitch

It was a fairly negative week on the stock market as several positive jobs report came in better than expected leaving investors little chances to hope for a shift in monetary policy. Oversold conditions worsened at the start of the week and the S&P500 approached its 200-day moving average. And yet, despite the very strong report on Friday, the US markets staged a significant rally probably due to the average hourly earnings coming in cooler than expected. Investors can be unreasonably selective in terms of which data to base their decisions on. In the medium term, however, yields and inflation data are likely to affect where the markets go from here. In the long term, earnings and earnings expectations drive stocks. Responsible Investors should exercise caution and maintain a healthy proportion of their portfolio in cash and hedges as well as a diversified portfolio with some exposure to the European stock market and to emerging markets.

Weekly Portfolio Update

Here are this week’s movements: we have taken partial profits on our Halliburton long position (+30.4%). We have accumulated on our Boeing, Newmont Mining, Brazil ETF and silver ETF long position. Sell stops were triggered on our Desktop Metal long position. Cash, US treasury bills, precious metals and hedges amount to 37% in our portfolio (decreased compared to last week).

Top 5 Weekly Portfolio Performers

Foot Locker +14.1% (Apparel)

ProShares UltraPro Short Russell 2000 +6.6% (3x inverse the Russell 2000)

Google +5.2% (Tech)

Meta Platforms +5.1% (Tech)

Walt Disney +2.3% (Entertainment)

Portfolio Asset Allocation

US stocks long positions 49% (unchanged)

EU stocks long positions 8.5% (unchanged)

Emerging markets long positions 5.0% (increased)

US stocks short positions 0.5% (reduced)

Hedges 7.5% (unchanged)

Silver & Gold 2.5% (increased)

US Treasury bills 2% (unchanged)

Cash 25.0% (decreased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +9.2% (excl. dividends) vs the S&P500 gain of +15.1%.

Invest responsibly!!!

Will oversold conditions help the stock market? | Responsible Investor Weekly Newsletter, September 30th, 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 “Will oversold conditions help the stock market?”, and was written on September 30th, 2023.

Weekly summary in a paragraph

The US stock market indices were mixed this week, as US treasury yields rose and portfolio managers increased spending as part of the end of quarter ‘window dressing’. The European stock market fell for the second week in a row despite better thank expected inflation data in the Eurozone. The 2-10y spread tightened significantly this week and is still inverted at -44 basis points. A strong jobs report and cooler than expected PCE data were this week’s highlights in terms of US economic data. In corporate news, Micron and Accenture guided lower while Nike jumped on strong guidance. Despite the vast majority of the S&P500 companies having now reported Q2 earnings, there are still notable ones due to be published next week such as McCormick, Tilray, Constellation Brands and Levi’s.

Asset classes weekly performance

This week the Dow finished -1.3% lower (+1.1% year to date) while the S&P500 lost -0.7% (+11.7% year to date), the Nasdaq rose +0.1% (+26.3% year to date) and the Russell 2000 gained +0.5% (+1.4% year to date). Gold finished -3.7% lower (-3.2% year to date) while Silver tanked -4.3% (-10.9% year to date). Crude Oil gained +1.2% (+20.4% year to date). The 10-y US treasury yield rose +0.7% (+20.6% year to date). The European stock market gave up -1.3% (+8.6% year to date). The Euro lost -0.68% against the US Dollar (-1.26% year to date).

Weekly pitch

Technical analysis can help assess the market direction from time to time. With the market currently in oversold conditions, there is a fair chance of a bounce. This week’s performance was masked by end of quarter movements. New money pours in at the beginning of the month which might sustain the stock market at the beginning of next week. In the medium term, however, yields are likely to affect where the markets go from here. In the long term, earnings and earnings expectations drive stocks. Responsible Investors should exercise caution and maintain a healthy proportion of their portfolio in cash and hedges as well as a diversified portfolio with some exposure to the European stock market and to emerging markets.

Weekly Portfolio Update

Here are this week’s movements: we have taken full profits on our Ross Stores short position (+8.5%). We have initiated a long position on Boeing and a consumer staples ETF, and accumulated on our Newmont Mining long position. Cash, US treasury bills, precious metals and hedges amount to 38% in our portfolio (decreased compared to last week).

Top 5 Weekly Portfolio Performers

The Gap +6.9% (Apparel)

Callon Petroleum +5.5% (Oil)

ProShares UltraPro Short Dow 30 +4.4% (3x inverse the Dow)

Denbury Resources +2.2% (Oil)

Hilton Worldwide Holdings +1.8% (Hotels & Leisure)

Portfolio Asset Allocation

US stocks long positions 49% (increased)

EU stocks long positions 8.5% (unchanged)

Emerging markets long positions 4.5% (unchanged)

US stocks short positions 0.5% (reduced)

Hedges 7.5% (unchanged)

Silver & Gold 2% (unchanged)

US Treasury bills 2% (unchanged)

Cash 26.5% (decreased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +12.6% (excl. dividends) vs the S&P500 gain of +17.8%.

Invest responsibly!!!

What does a rising 10-year yield mean for the stock market? | Responsible Investor Weekly Newsletter, September 23rd, 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 “What does a rising 10-year yield mean for the stock market?”, and was written on September 23rd, 2023.

Weekly summary in a paragraph

The US stock market indices finished markedly lower this week, as the Fed decided to pause interest rate hikes at its September FOMC meeting and the ‘dot plot’ alluded to a ‘higher-for longer’ monetary policy. The European stock market returned to losses on news of economic slowdown within the region and particularly in France. The 2-10y spread tightened slightly this week and is still inverted at -66 basis points. It was a slow news week in terms of economic data. In corporate news, both Stitch Fix and Fedex rose on a Q2 earnings beat while Kb Home slumped. Despite the vast majority of the S&P500 companies having now reported Q2 earnings, there are still notable ones due to be published next week such as Nike, Carnival, Micron and Costco. Accenture will report its Q3 earnings, also.

Asset classes weekly performance

This week the Dow finished -1.9% lower (+2.5% year to date) while the S&P500 lost -2.9% (+12.5% year to date), the Nasdaq gave up -3.6% (+26.2% year to date) and the Russell 2000 fell -3.8% (+0.9% year to date). Gold finished -0.4% lower (+1.0% year to date) while Silver gained +1.4% (-5.2% year to date). Crude Oil lost -0.3% (+19.8% year to date). The 10-y US treasury yield jumped +2.8% (+17.0% year to date). The European stock market gave up -2.5% (+10.0% year to date). The Euro lost -0.19% against the US Dollar (-0.58% year to date).

Weekly pitch

The risk-off experienced this week was driven by the sell-off in US bonds, particularly in the 10-year which reached the 4.5% yield mark. This is particularly negative for long duration stocks as their price to earnings ratio is harmed by rising yields. Long duration stocks include tech stocks as well as speculative stocks. Should the Fed continue to exert pressure on interest rates for longer this will end up hurting the stock market and reduce valuations. Responsible Investors should exercise caution and maintain a healthy proportion of their portfolio in cash and hedges as well as a diversified portfolio with some exposure to the European stock market and to emerging markets.

Weekly Portfolio Update

Here are this week’s movements: we have taken full profits on our Academy Sports and Outdoors short position (+9.8%) and partial profits on our Ross Stores short position (+6.1%) as well as our triple inverse Nasdaq ETF long position (+2.4%). Sells stops were trigger on our HRB short position. Cash, US treasury bills, precious metals and hedges amount to 39% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

ProShares UltraPro Short Russell 2000 +11.3% (3x inverse the Russell 2000)

iPath Series B S&P 500 VIX Short-Term Futures TM +10.7% (Volatility ETF)

ProShares UltraPro Short QQQ +8.8% (3x inverse the Nasdaq)

ProShares UltraPro Short Dow 30 +5.1% (3x inverse the Dow)

iShares Silver Trust +2.3% (Silver ETF)

Portfolio Asset Allocation

US stocks long positions 47% (increased)

EU stocks long positions 8.5% (unchanged)

Emerging markets long positions 4.5% (unchanged)

US stocks short positions 1.0% (reduced)

Hedges 7.5% (reduced)

Silver & Gold 2% (unchanged)

US Treasury bills 2% (unchanged)

Cash 27.5% (increased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +13.2% (excl. dividends) vs the S&P500 gain of +15.0%.

Invest responsibly!!!