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!!!
Responsible Investor 