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!!!

Can Q2 earnings save the stock market from recession fears? | Responsible Investor Weekly Newsletter, June 24th, 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 “Can Q2 earnings save the stock market from recession fears?”, and was written on June 24th, 2023.

Weekly summary in a paragraph

The US stock market indices finished lower this week, with the S&P500 and the Nasdaq breaking a 5 and an 8-week positive streak, respectively. Recession fears drove the narrative as the yield inversion breached the psychological threshold of 100 basis points intra-session. The European stock market underperformed the US stock market, spooked by the surprise move of both the Bank of England and the Norway’s central bank who hiked interest rates by 0.5%. The 2-10y spread continues to widen and has now an inverted value of -97 basis points. In economic data, the US housing starts data published this week surpassed economists’ expectations as low existing home inventory continues to push buyers into the new home market. In corporate news, Accenture exceeded expectations while Darden Restaurants underwhelmed investors. Next week there are a handful of Q1 earnings left, including Carnival, General Mills, Micron and Nike.

Asset classes weekly performance

This week the Dow finished -1.98% lower (+1.8% year to date) while the S&P500 dropped -1.75% (+13.3% year to date), the Nasdaq lost -2.11% (+28.9% year to date) and the Russell 2000 tanked -3.6% (+3.4% year to date). Gold finished -0.89% lower (+1.9% year to date) while Silver gave up-3.35% (-8.7% year to date). Oil dropped -2.37% (-9.3% year to date). The 10-y US treasury yield was +0.27% higher (-1.4% year to date). The European stock market finished -4.9% lower (+14.7% year to date). The Euro lost -0.4% against the US Dollar (+1.8% year to date).

Weekly pitch

When the return of short-term bonds exceeds that of long-term bonds, economists talk about yield ‘inversion’. Over the years this phenomenon has been a precursor of recessions. After weeks of positive sentiment fuelled by AI frenzy, this week the markets have experienced a reality check and taken a step back. With the next Fed decision not due until late July, investors will now turn to Q2 earnings which will kick off week after next. Earnings and earnings forecasts have consistently been the most important driver of the stock market. Until the current Q2 earnings expectations are confirmed, 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.

Weekly Portfolio Update

Here are this week’s movements: we took partial profits on our Gold ETF long position (+7.2%), as well as full profits on our Plug Power long position (+10.4%); a stop loss was triggered on our Tesla short position. We initiated long positions on a Thailand ETF, a Silver ETF, ACI Worldwide and Dish, as well as a short position on Thor. Cash, precious metals and hedges amount to 40.5% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

ProShares UltraPro Short Russell2000 +8.7% (3x inverse the Russell 2000)

ProShare UltraPro Short Dow30+4.5% (3x inverse the Dow)

Meta +2.8% (Tech)

ProShares UltraPro Short QQQ +2.7% (3x inverse the Nasdaq)

Centene +1.0% (Managed Healthcare)

Portfolio Asset Allocation

US stocks long positions 49.5% (increased)

EU stocks long positions 10% (increased)

US stocks short position 2% (reduced)

Hedges 8.0% (unchanged)

Silver & Gold 2% (reduced)

Cash 28.5% (unchanged)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +10.7% (excl. dividends) vs the S&P500 gain of +14.6%.

Invest responsibly!!!

Is your portfolio protected from liquidity risk? | Responsible Investor Weekly Newsletter, June 17th, 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 your portfolio protected from liquidity risk?”, and was written on June 17th, 2023.

Weekly summary in a paragraph

The US stock market indices finished higher this week, after the Fed opted for a widely expected ‘pause’ which was labelled as “hawkish”. The European stock market was also very strong, though the Euro weakened relative to the US Dollar as the ECB hiked the interest rate by another quarter percentage point. The 2-10y spread continues to widen and has now an inverted value of -93 basis points. In economic data, the May CPI report came in mostly in line. The stock market appeared to ignore the initial jobless claims report which came in weaker than expected. In corporate news, Lennar’s earnings exceeded expectations while Kroger underwhelmed investors. Next week there are a handful of Q1 earnings left, including Fedex, Kb Home and Darden, as well as Accenture’s Q2 earnings report.

Asset classes weekly performance

This week the Dow finished +1.3% higher (+3.5% year to date) while the S&P500 gained +2.6% (+14.9% year to date), the Nasdaq rose +3.3% (+30.8% year to date) and the Russell 2000 gained +0.5% (+6.5% year to date). Gold finished +0.6% higher (+4.1% year to date, we are long) while Silver gained +1.9% (-1.3% year to date). Oil rose +2.9% (-7.2% year to date). The 10-y US treasury yield was -1.8% lower (-0.6% year to date). The European stock market finished +4.1% higher (+20.7% year to date). The Euro lost -1.88% against the US Dollar (-2.3% year to date).

Weekly pitch

The Dow was the third major index to break-out this week, after the S&P500 and the Nasdaq. The macro picture does not support the strong move to the upside seen in recent weeks, however: in fact, the growing divergence between the indices and liquidity is concerning. AI and fear of missing out seems to be fuelling the bulls. When greed is at its peak, 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.

Weekly Portfolio Update

Here are this week’s movements: we took partial profits on our Draftkings long position (+31.7%), as well as full profits on our Desktop Metal (+28.7%) and Freeport McMoRan (+10.0%) long positions; a stop loss was triggered on our Coinbase short position as well as on our XPO Logistics short position. We initiated a long position on Zimmet Biomet Holdings and short positions on Tesla, Lennar and UPS. Cash, precious metals and hedges amount to 42% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Plug Power +15.3% (Electronic Tech)

Duerr +10.5% (Industrial Machinery)

Meta +6.1% (Tech)

BorgWarner +6.0% (Construction Machinery)

BUD +5.5% (Alcoholic Beverages)

Portfolio Asset Allocation

US stocks long positions 48.5% (reduced)

EU stocks long positions 9.5% (unchanged)

US stocks short position 3% (unchanged)

Hedges 8.0% (increased)

Silver & Gold 2.5% (unchanged)

Cash 28.5% (increased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +15.6% (excl. dividends) vs the S&P500 gain of +20.2%.

Invest responsibly!!!

Has #volatility peaked ?

Has volatility peaked ? Difficult to say, what’s certain is that over the past 4 weeks the US markets have wiped out all the gains of the last 3 years, basically since Trump’s presidency started. Some say that coronavirus has only been the trigger of the neutralisation of a rally on steroids caused by liquidity injection and tax breaks, ie not of true #earnings growth. While more #liquidity is coming, it would appear that monetary policy alone is not going to be a sufficient cure for the market and that fiscal policy is also needed as well as an effective way to put an end to this biological crisis.

Intro over. So what can investors do in these difficult times ? Last week we talked about raising cash and inverse funds. The situation has not changed as volatility remains high although it has decreased from about 80 to about 60 this past week.

In the meantime, it helps looking at what the new earnings are saying. $ACN for example, a company on my watchlist, has beat expectations early this week but halved their revenue forecast. This company traditionally releases earning much earlier than most S&P companies, which are not due for a few more weeks.

Another interesting observation. The Norwegian krona has tanked and lost about 20% compared to the Euro in the past 20 days: that is a massive drop for a currency of a country with AAA rating ! #Norway has been seriously hit by the virus, is not part of the EU which prevents them from accessing the benefits of QE and is heavily reliant on $OIL which is down >50% over the past month. Not looking good for Norway, but is their currency a possible future investment opportunity when the situation stabilises ?

This week 3 of our long positions have hit the stop loss limit, namely $SYF, $RR.L and $OXY . It is very important not to let your losses run beyond 7 to 20%, depending on your risk profile and whether they are dividend payers or not, so it is advisable to insert suitable stop losses, thankfully this is function that works well on many trading platforms. I continue to watch $SYF closely as I think there will be a great buying opportunity in the not too distant future, whereas I think $RR.L will be under prolonged pressure due to their reliance from the aviation industry and $OXY won’t recover until $OIL rebounds unless they are taken over.

As always, be patient and invest responsibly !

Happy weekend to all.

Featured stock of the week: #Accenture $ACN

Accenture ($ACN) provides management consulting, technology, and outsourcing services and is normally among the first companies reporting earnings at the beginning of each quarter: I find their earnings more interesting than those of Alcoa which have traditionally been considered as the start of the earnings period.

The company reported an earnings beat for Q3 on June 28th for both EPS and revenue. Guidance was reported as being in-line with expectations. Earnings misses are rare for $ACN and the company forecasts more top- and bottom-line growth in the quarters ahead.

The company is now up 8% YTD and has beaten the market over the years doubling its value over the last 5 years and tripling its value over the last 10 years. Despite these capital appreciation figures, it also yields a 1.6% dividend to its investors.

Here is a snapshot of their operations as of the first half of 2018:

Accenture is a global leader in the digital transformation and is also seen by some as a #blockchain play.