Q2 earnings decline: now what? | Responsible Investor Weekly Newsletter, July 29th, 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 “Q2 earnings decline: now what?”, and was written on July 29th, 2023.

Weekly summary in a paragraph

The US stock market indices were higher this week, with all the major indices advancing on news of generally good earnings and positive economic data. The European stock market was also stronger though this week’s gain was offset by the Euro depreciating relative to the US Dollar. The 2-10y spread shrunk after two weeks of widening and is still inverted at -91 basis points. Economic data this week included the FED’s decision to hike by another 0.25%, as widely expected, and core PCE continuing to decelerate. The Bank of Japan surprised markets by announcing it first shift from a decade-long period of monetary easing. In corporate news, one third of the S&P500 companies reported Q2 earnings season with notable beats from Meta, Google and Intel. On the flipside, Procter & Gamble’s 2024 outlook disappointed and Chipotle’s earnings were mixed. Next week 170 S&P500 companies report Q2 earnings, including Apple, AMD, Amazon and Starbucks to name a few.

Asset classes weekly performance

This week the Dow finished +0.7% higher (+7.0% year to date) while the S&P500 gained +1.0% (+19.3% year to date), the Nasdaq jumped +2.0% (+36.8% year to date) and the Russell 2000 was +1.1% stronger (+12.5% year to date). Gold finished -0.2% lower (+3.7% year to date) while Silver slid -1.4% (-1.4% year to date). Crude Oil appreciated +1.3% (+5.8% year to date). The 10-y US treasury yield gained +1.5% (+4.6% year to date). The European stock market gave up +0.7% (+21.6% year to date). The Euro lost -0.95% against the US Dollar (+2.9% year to date).

Weekly pitch

With 51% of the S&P500 companies having reported Q2 earnings so far, an attempt to draw some preliminary conclusions can be made. Q2 earnings decline is presently -7.3%, lower than expectations of -7.0% at the beginning of the quarter. If this figure is confirmed, it would be the third quarterly earnings decline in a row and the highest since the disastrous Q2 2020 which was due to the pandemic. Even if the forecasted earnings growth in Q3 and Q4 were confirmed, the expected earnings growth for 2023 is a meager +0.4%. Therefore, 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 have taken partial profits on our Meta (+129%) and Campari (+19.3%) long positions. We have accumulated our Disney, Raytheon and Zimmer Biomet Holdings long positions and initiated a short position on Molson Coors Brewing. Stop losses were triggered on our XPO Logistics, Rivian and Overstock short positions. Cash, US treasury bills, precious metals and hedges amount to 44.5% in our portfolio (unchanged compared to last week).

Top 5 Weekly Portfolio Performers

The Gap +13.4% (Apparel)

KraneShares CSI China Internet +12.7% (Internet services Chinese companies ETF)

Meta +10.6% (Tech)

Google +10.6% (Tech)

Yelp +9.0% (Tech)

Portfolio Asset Allocation

US stocks long positions 47% (unchanged)

EU stocks long positions 8.5% (unchanged)

US stocks short position 2.5% (reduced)

Hedges 8.0% (unchanged)

Silver & Gold 2% (unchanged)

US Treasury bills 2% (unchanged)

Cash 30% (increased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +11.9% (excl. dividends) vs the S&P500 gain of 12.5%.

Invest responsibly!!!

What is ‘window dressing’ and why does it matter? | Responsible Investor Weekly Newsletter, July 1st, 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 is ‘window dressing’ and why does it matter?”, and was written on July 1st, 2023.

Weekly summary in a paragraph

The US stock market indices finished higher this week, with all the major indices recovering after last week’s decline. The Nasdaq has had the best first half of the year ever. The European stock market outperformed the US stock market as the Eurozone flash PMI came in lower than expected, and is ahead of the S&P500 for the third quarter in a row. The 2-10y spread continues to widen and has now an inverted value of -106 basis points. Economic data published this week was mostly positive. In speaking at an event in Europe, Powell stated that future hikes are still a possibility. In corporate news, Carnival beat expectations while Nike and Micron missed. No major earnings reports next week. The Q2 earnings seasons kicks off week after next with some of the largest US banks reporting on Friday the 14th of July.

Asset classes weekly performance

This week the Dow finished +2.02% higher (+3.8% year to date) while the S&P500 gained +2.35% (+15.9% year to date), the Nasdaq soared +2.19% (+31.7% year to date) and the Russell 2000 jumped +3.68% (+7.2% year to date). Gold finished +0.2% higher (+1.8% year to date) while Silver gave up -0.7% (-7.4% year to date). Oil gained +4.1% (-8.1% year to date). The 10-y US treasury yield was +1.35% higher (+0.69% year to date). The European stock market gained+3.6% (+18.8% year to date). The Euro lost -0.1% against the US Dollar (+1.8% year to date).

Weekly pitch

There wasn’t enough in the economic data reports to sustain the rally that all major indices experienced this week. The end of Q2, however, meant that fund managers were busy with the so-called ‘window dressing‘, an investment practice whereby money managers sell laggards in their portfolio and buy stocks which have had a good run. That way, their portfolios appear to be full of winners. Fund managers move a lot of money in the markets and window dressing may have masked what would have otherwise been a quiet week. 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 Campari long position (+22%), as well as full profits on our ASX long position (+6.5%) and our UPS short position (+4.4%); a stop loss was triggered on our Thor short position. Cash, precious metals and hedges amount to 42% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Callon Petroleum +9.6% (Oil)

Dish Network +9.5% (Cable/Satellite TV)

BorgWarner +8.1% (Trucks)

Marriott +7.1% (Hotels)

ACI Worldwide +7.0% (Tech)

Portfolio Asset Allocation

US stocks long positions 49.5% (unchanged)

EU stocks long positions 8.5% (reduced)

US stocks short position 2% (unchanged)

Hedges 8.0% (unchanged)

Silver & Gold 2% (unchanged)

Cash 30% (increased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +14.0% (excl. dividends) vs the S&P500 gain of +16.5%.

Invest responsibly!!!

Is disinflation a precursor of a recession? | Responsible Investor Weekly Newsletter, April 15th, 2023

$WWE $DXCM $HAL $EA $SDOW $SNAP $ADBE $FIVE $ACIW $XLV $AAPL $SNY $GOOG $QQQ $RTX $CPR.MI $SAND.ST $AMZN $WSM $NVDA $DEN $LIT $QCOM $BRK.B $NUE $DIS $MP $GL $WMT $TGT $GILD $CNC $SH $GLD $SLV $SON $NEM $HLT $NXPI $DEN $GPS $JPM $CMG $MSFT $META $BWA $LEA $PSQ $SRTY $SQQQ

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 disinflation a precursor of a recession?”, and was written on April 15th, 2023.

Weekly summary in a paragraph

The US stock market indices finished higher for the week, despite a sell-off on Friday. The main catalyst consisted in the declining PPI data published on Thursday, just a day after the CPI report came in cooler-than-expected. The European stock market continued to show its strength and so did the Euro. The 2-10y spread finished flat and is still inverted at -56 basis points. In corporate news, Tesla announced a series of price cuts in the US and three of the major US banks (JP Morgan, Citigroup and Wells Fargo) were the first to report a Q1 2023 earnings beat this week, with JP Morgan results being the most impressive. The earnings season kicks off in earnest next week: any significant misses may exert pressure on the market.

Asset classes weekly performance

This week the Dow finished +1.2% higher (+2.2% year to date) while the S&P500 gained+0.7% (+7.7% year to date), the Nasdaq rose +0.3% (+15.8% year to date) and the Russell 2000 advanced +1.5% (+1.1% year to date). Gold finished +0.7% higher (+7.5% year to date, we are long) while Silver gained +2.2% (+4.3% year to date, we are long). Oil was +3.7% higher (+6.9% year to date). The 10-y US treasury yield gained +3.1% (-7.1% year to date). The European stock market rose +0.7% (+16.8% year to date). The Euro finished +0.76% higher against the US Dollar (+2.7% year to date).

Weekly pitch

The economic data published this week supports the disinflation narrative and leaves the Fed in the challenging position of timing the pivot correctly, if that’s at all possible: not too early to avoid inflation picking up again, and not too late to risk sending the economy into a deep recession. While a recession in late 2023 or early 2024 seems to be in the cards, the real question is how severe it may be and how long it may last. Thankfully not everything is in the hands of the monetary policy makers: the Q1 2023 earnings and especially the future earnings forecasts will provide an objective read of the state of publicly traded companies. Ultimately, it is the growth in earnings that has pushed the markets higher over the decades. Responsible investors should keep an eye on their positions during the earnings seasons, and adjust their portfolio depending on how the companies they have invested in guide for future quarters. This week we have beaten the market again and have deployed some cash.

Weekly Portfolio Update

Here are this week’s movements: we took partial profits on our Newmont Mining long position (+7.4%) and exited our Coinbase short position with a nominal gain; a sell stop was triggered on our Dexcom short position. Cash, precious metals and hedges amount to 39% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

Palantir +8.90% (Tech)

JP Morgan +8.83% (Banking)

Callon Petroleum +7.57% (Oil)

Freeport McMoRan +7.12% (Non-energy minerals)

BorgWarner +5.80% (Automotive)

Portfolio Asset Allocation

US Long stock positions 52% (increased)

EU Long stock positions 9% (unchanged)

US Short stock position 4.5% (increased)

Hedges 7.5% (unchanged)

Silver & Gold 5% (unchanged)

Cash 22% (reduced)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +0.1% (excl. dividends) vs the S&P500 loss of -5.8%, which corresponds to a +5.9% market beat.

Invest responsibly!!!