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!!!

Which key word did Fed Chair Powell not utter? | Responsible Investor Weekly Newsletter, May 6th, 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 “Which key word did Fed Chair Powell not utter?”, and was written on May 6th, 2023.

Weekly summary in a paragraph

The US stock market indices finished mostly lower this week, with the exception of the Nasdaq which managed to gain a meager 0.1%. The week was dominated by the FOMC meeting which confirmed the 0.25% increase in interest rate, as expected. There was one key word which the Fed’s chair Powell did not utter, though: “pause”. In other words, the Fed will keep making decisions on the basis of economic data, and is not prepared to commit to this latest increase being the last in the cycle. The European stock market finished higher and is still leading year to date, globally, despite this week’s ECB rate hike. The 2-10y spread reversed its trend and reduced the gap to an inverted value of -48 basis points. In terms of economic data, the ISM index published on Monday was slightly better than consensus, and the jobs report came in stronger than expected on Friday. In corporate news, Apple beat earnings and saved the market from an even deeper weekly loss, though this is the second quarter in a row that Apple revenue has decreased. Next week more S&P500 companies report earnings, including Paypal, Airbnb and Disney.

Asset classes weekly performance

This week the Dow finished -1.24% lower (+1.6% year to date) while the S&P500 gave up -0.8% (+7.7% year to date), the Nasdaq advanced +0.1% (+16.9% year to date) and the Russell 2000 lost -0.5% (-0.1% year to date). Gold finished +0.1% higher (+7.8% year to date, we are long) while Silver gained +1.21% (+5.4% year to date, we are long). Oil lost -0.5% (-7.7% year to date). The 10-y US treasury yield gave up -0.2% (-9.2% year to date). The European stock market gained +0.2% (+19.9% year to date). The Euro appreciated +0.11% against the US Dollar (+2.92% year to date).

Weekly pitch

Strong economic data and the Fed’s refusal to pivot were responsible for a negative week. While the quarter percentage point rate hike was largely expected, the market was looking for the Fed to confirm that no further hikes were planned, and were therefore disappointed by Powell’s words during the press conference. Despite the proximity of the war in Ukraine, the performance of the European stock market and of the Euro keeps being superior relative to the US indices and the US dollar. 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. This week we have beaten the market, taken full profits on long positions and initiated new long positions.

Weekly Portfolio Update

Here are this week’s movements: we took profits on our Arconic Corporation (+17%), Electronic Arts (+10.6%) and Sanofi (+9.1%) long positions; sell stops were triggered on our Capri Holdings and on the US Banks ETF long positions. We initiated long positions on Plug, Restaurants Brands International and AMD. Cash, precious metals and hedges amount to 41% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Arconic Corporation +17.4% (Aluminum)

Rational +7.8% (Industrial Machinery)

Sibanye Stillwater +7.4% (Precious Metals)

Davide Campari +4.6% (Alcoholic Beverages)

Marriot International +4.3% (Hotels & Leisure)

Portfolio Asset Allocation

US Long stock positions 49.5% (reduced)

EU Long stock positions 9.5% (reduced)

US Short stock position 4.5% (increased)

Hedges 8% (increased)

Silver & Gold 3.5% (unchanged)

Cash 25% (unchanged)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +5.2% (excl. dividends) vs the S&P500 loss of -0.3%, which corresponds to a +5.5% market beat.

Invest responsibly!!!

Earnings surprise! What to do now | Responsible Investor Weekly Newsletter, April 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 “Earnings surprise! What to do now”, and was written on April 29th, 2023.

Weekly summary in a paragraph

The US stock market indices finished higher this week, though the Russell 2000 didn’t participate. Q1 GDP data published this week reported a 1.1% growth in the US while the Europe area stopped at 0.1%, and avoided a recession by a hair. The European stock market saw an end to multi-week gains but is still leading year to date, globally. The 2-10y spread was flat and is still inverted at -60 basis points. Oil now in negative territory after the first four months of 2023. In terms of economic data, March headline and core PCE inflation came in mostly in line. Personal income and spending for March was reported slightly higher than expected. In corporate news, mega cap companies like Microsoft and Meta smashed Q1 2023 earnings, Alphabet reported a beat while Amazon’s guidance underwhelmed. Many other long positions in our portfolio reported an earnings beat this week, Chipotle and Fielmann above all. Next week 126 S&P500 companies report earnings, including AMD, Apple and Novo Nordisk.

Asset classes weekly performance

This week the Dow finished +0.86% higher (+2.9% year to date) while the S&P500 gained +0.87% (+8.6% year to date), the Nasdaq advanced +1.28% (+16.8% year to date) and the Russell 2000 lost -1.26% (+0.4% year to date). Gold finished flat (+6.5% year to date, we are long) while Silver lost -0.74% (+3.0% year to date, we are long). Oil tanked -2.7% (-0.8% year to date). The 10-y US treasury yield gave up -1.79% (-9.0% year to date). The European stock market lost -0.4% (+19.7% year to date). The Euro gained +0.24% against the US Dollar (+2.9% year to date).

Weekly pitch

The earnings estimate for the S&P500 companies in Q1 2023 was just over 50$, in aggregate, at the beginning of the earnings season. After 222 companies reported so far that number has increased by 2.5%. If this increase is representative of the other half which will report in May, the overall figure may increase to 54-55$, ie one of the largest in recent years. It is important to note, however, that the year to date increase on the index is led by very few companies, therefore now more than ever before it is a stock picker’s market. Until more earnings data is available over the next couple of weeks, responsible investors should exercise caution and maintain a healthy proportion of their portfolio in cash and hedges. Analysts now believe that another quarter point rate hike will happen at next week’s FOMC meeting, with an 86% probability. This week we have taken full or partial profits on long and short positions and initiated new long positions.

Weekly Portfolio Update

Here are this week’s movements: we took profits on our Eli Lilly (+13.9%) long position, on our Snapchat (+2.6%) and Pinterest (+16%) short positions and partial profits on our Microsoft (+15.3%), Halliburton (+4.5%), Raytheon Technologies (+4.3%), Sibanye Stillwater (+4.2%) and Capri Holdings (+3.6%) long positions. We initiated long positions on three Chinese ETFs. Cash, precious metals and hedges amount to 40% in our portfolio (increased compared to last week).

Top 5 Weekly Portfolio Performers

Fielmann +16.43% (Medical Specialties)

Chipotle Mexican Grill +14.87% (Restaurants)

Meta +12.88% (Technology Services)

Microsoft +7.52% (Technology Services)

Centene +4.46% (Managed Healthcare)

Portfolio Asset Allocation

US Long stock positions 50% (reduced)

EU Long stock positions 10% (unchanged)

US Short stock position 4% (reduced)

Hedges 7.5% (unchanged)

Silver & Gold 3.5% (reduced)

Cash 25% (increased)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +4.2% (excl. dividends) vs the S&P500 loss of -2.8%, which corresponds to a +7.0% market beat.

Invest responsibly!!!