Sent to clients 1/5/2023
Good afternoon,
And so we arrive in May. And as we are now officially in the “market goes down because it usually has and it rhymes” season it’s worth checking on the two separate markets we have going at the moment in the US. There’s Big Tech and there’s everything else.
Some extraordinary stats as at Friday morning.
Apple and Microsoft have accounted for nearly 50% of the S&P500s move YTD.
Add the rest of FAANG and it has accounted for a whopping 94% of the S&P500s return YTD.
With Amazon having reported yesterday after the close with beats, FAANG outperformance could account for the entire S&P500 gain when US opens today.
Microsoft accounted for 140% of the NDX move on Thursday. The equal weighted Nasdaq was actually down.
So a concentration on a few massive tech stocks would be, although riskier, beneficial to portfolios. That being said they are some great names in Apple and Microsoft and I’m happy to play the “almost the same” game with HNDQ holding 25% just in those two. Add Amazon, Meta and the Googles and it’s over 40% held in the Betashares NASDAQ ETF. I’m happy with that.
There’s some chatter in corners of the market about just how short speculators are on S&P 500 futures…
Shortest since 2011. That’s important.
Usually this is seen to indicate a great chance at a spring back in markets. Something pops up, shorts have to unwind, that drags the whole market up. Everyone wins (except those shorting guys but we don’t care about those guys). It happened in 2020, 2015 and 2011. However, our friends at research house Game of Trades have put together some reasons as to why that’s not always the case.
“The key difference lies in monetary policy environment.”
If monetary policy is accommodative it can be an indicator of a short, yet when there’s an inverted 2/10 yield curve (a sign of recession) then there’s a better chance the market short positioning is accurate.
The current yield curve, as has been pointed out many times in the past, is aggressively inverted. The most since the 1980s.
So looks like we have a market ready to do…something. Someone’s going to be right.
A little bit like the rates decision by the RBA tomorrow. Bond market saying it’s not going to happen, up against some very smart economists who say it will.
Also there’s this out of the US as well regarding large bankruptcies for the first 4 months of the year.
I cannot stress enough that the economy is tough in every regard except those you can see in front of you.
Best illustrated here…
On the left is the economy…on the right is the market. Specifically, the NASDAQ. A couple of teeth knocked out but a little taller and heavier than its former self.
And yet the market shows how vital it is to stay invested. The S&P 500 is back to where it was in April last year and in April 2021.
Phenomenal.
Mike Hartnett, BofA strategist has 4200 as a point for investors to shed some exposure and wow we are really close to that now.
Big shorts, inverted curve, reputable analysts saying to sell all in rhyme season. Has all the ingredients for a very bullish market.
Now specifically…
Mac bank put out a note last week saying what happens to markets if the RBA pauses. Whilst they may raise in May (thanks) that will be it. The catch up in Oz and the US from aggressive hiking takes over and impacts unemployment and growth, adding to the room for cuts, which is bullish for markets.
Sounds bizarre but that’s the most concise summary for the back end of 2023 as you’re likely to get.
Bond yields typically fall after a pause, earnings downgrades continue (as a result of slower growth which came about after the hikes) so defensives are the place to be. They recommend health, staples and gold as outperformers.
IXJ (iShares Global Healthcare ETF) or DRUG (Betashares Healthcare ETF) are both good enough to achieve this healthcare goal.
Second finally there was a podcast over the weekend from UBS interviewing the Chief Investment Strategist for Blackstone (Joe Zidle) and asking what they’re seeing. For anyone asking Blackstone owns everything. The insight from a company like Blackstone is invaluable. 700000 people across pretty much every type of business. It’s a great one to listen to so here’s a link but the last comment really made me sit up and remember something I’d been waiting for an entry on a while ago.
“In private real estate we are quickly becoming one of the largest data centre owners in the world and I think the data centres will be as meaningful as the logistics business for us in the real estate portfolio….the need for data is only going up.”
Joe goes into a bit about Artificial Intelligence being the driver here but bottom line is getting some data centres in portfolios to fill any gaps in property probably wouldn’t be the worst idea.
Global X has VPN, and ETF specifically for this purpose but I’m afraid it’s not inspiring me to leap in (a little bit like the water ETF I have on the watchlist from last week)
But if we break down the ETF the top holding is Equinix (EQIX) and that’s a name I can fall in love with. They have a decent enough leverage to the data centres and secure networks required by Artificial Intelligence providers (think Chat GPT etc) that it is yet to be fully priced in by the market.
I’m favouring EQIX to the upside here, pending confirmation by some further research but happy to take a starter position before earnings on Wednesday.
All the best and stay safe,
James
James Whelan | Investment Manager
Ground Floor, 5-9 Harbourview Crescent, Milsons Point NSW 2061
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