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!!!