Tag: volatility

Apple’s earnings decline again: third time unlucky? | Responsible Investor Weekly Newsletter, August 5th, 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 “Apple’s earnings decline again: third time unlucky?”, and was written on August 5th, 2023.

Weekly summary in a paragraph

The US stock market indices were lower this week, as all the major indices were spooked by Fitch downgrading to AA+ the US national debt and by mixed labour market data. The European stock market was also weaker on negative sentiment caused by poor Q2 earnings and 2024 forecasts. The 2-10y spread shrunk again and significantly this week, but it is still inverted at -73 basis points. The Bank of England raised interest rates to a new 15-year high, warning that its fight against inflation may require tighter borrowing conditions for a longer period. In corporate news, one third of the S&P500 companies reported Q2 earnings with Amazon beating and Apple underwhelming investors. Next week more S&P500 companies will report Q2 earnings, including Disney, UPS and Novo Nordisk to name a few.

Asset classes weekly performance

This week the Dow finished -1.1% lower (+5.8% year to date) while the S&P500 lost -2.3% (+16.6% year to date), the Nasdaq depreciated -2.9% (+32.9% year to date) and the Russell 2000 was -1.2% weaker (+11.1% year to date). Gold finished -1.5% lower (+2.7% year to date) while Silver slid -5.0% (-4.4% year to date). Crude Oil appreciated +1.0% (+8.4% year to date). The 10-y US treasury yield gained +2.6% (+7.0% year to date). The European stock market tanked -3.8% (+16.7% year to date). The Euro lost -0.1% against the US Dollar (+2.8% year to date).

Weekly pitch

We don’t typically feature individual stocks in the weekly pitch: the comments on Apple that follow are meant to illustrate the link between earnings and stock prices. As a general, well-established trend, stock prices follow earnings and earnings expectations. Last Thursday Apple reported the third consecutive quarterly decline in sales in a row. While the Services income reached an all time high, the decline in overall earnings may put pressure on the stock price, at least until the new lineup of models is presented in September. Responsible Investor has owned Apple on and off over the years (mostly on!), though we are not buyers at these levels. Responsible investors should review their positions during the earnings season, 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 full profits on our Draftkings (+52.9%), Yelp (+28.4%) and Range Resources (+14.3%) long positions and partial profits on our KWEB (+10.5%) long position. We have accumulated our Zimmer Biomet Holdings long position and initiated long positions on Newmont Mining, Hershey’s and Gilead Sciences as well as a short position on XPO Logistics. Cash, US treasury bills, precious metals and hedges amount to 43.5% in our portfolio (reduced compared to last week).

Top 5 Weekly Portfolio Performers

iPath Series B S&P500 VIX Short-Term Futures +12.8% (Volatility ETN)

ProShares UltraPro Short QQQ +9.5% (3x inverse Nasdaq ETF)

Duerr AG +4.5% (Industrial Machinery)

ACI Worldwide +4.4% (Packaged Software)

Halliburton +3.6% (Oil Services)

Portfolio Asset Allocation

US stocks long positions 48% (increased)

EU stocks long positions 8.5% (unchanged)

US stocks short position 2.5% (unchanged)

Hedges 8.0% (unchanged)

Silver & Gold 2% (unchanged)

US Treasury bills 2% (unchanged)

Cash 29% (reduced)

1-year Portfolio Performance

Our portfolio performance over the last 12 months is +11.3% (excl. dividends) vs the S&P500 gain of +7.9%, which corresponds to a 3.4% market beat.

Invest responsibly!!!

Has the #market bottomed ?

If anyone claims to have the answer to this question, they really don’t know what they are saying because the truth is nobody knows. So the best thing to do is to objectively assess what is going on, to invest responsibly and be patient.

This past week has been another rollercoaster with the US markets rallying more than 13% as you can see from the $SPY (an ETF which reproduces the SP500 index), however the #volatility has not moved much, with a weekly reduction of just over 1% (see $VXX the ETF which reproduces the VIX). This means that it is too early to call the bottom in my opinion.

SPY

All investors who are predominantly long are obviously pleased to see this week’s jump, don’t get me wrong, but there are many examples of rallies which have followed large drops. Look at what happened during the 2008 crisis for example, there were 6 positive jumps between +9 and +19% on the way down. Before the market finally bottomed in Q1 2009 the volatility was greater than 30.

File 28-03-2020, 15.14.28

So what can investors do in the meantime ? Be patient and take one day at a time. As I have a long term horizon and the market has already dropped a lot, I did do some nibbling this past week, focusing on dividend payers with a good valuation such as $BMY, but I still have a large cash position overall as I don’t reckon it is time to go all in yet.

I have also increased my hedges, by upping my position on a double inverse SP500 by 50%. One might ask, why enter or increase a long position on a stock while at the same time increasing a short position ? The answer lies in the time horizon, once again. I invest long when there is upside potential in the long term (most of the times), whereas I introduce hedges when markets are volatile, therefore in the short term. If there is another drop next week, my loss will be reduced; if it goes up again, I will gain less but hedges are typically a smaller percentage of one’s portfolio so the loss is limited. In fact, I wish I could always lose on my hedges !!!

If you are interested in seeing what additional stocks I might get long on when the conditions are right, please keep reading my weekend updates !

Stay safe everyone and 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.

Are these two indicators telling the same bullish story ?

I would describe myself as a value investor but can recognise some technical patterns or money outflow whenever I see some.

It would appear that the S&P500 is breaking out as shown on this graph:

Equally, it would seem that a significant outflow of money has been recorded from volatility investments which had dominated the market stories in the past weeks:

Some would see these two observations as a bullish indicator. While I keep this information in the back of my head, I remain a stock picker rather than just an investor who follows the herd.