MARKETS RECAP
- Last week was another dramatic and volatile one. A higher-than-expected inflation reading Wednesday spooked markets, but an even bigger sell-off occurred on Thursday when the S&P 500 briefly dipped to lows below 3,860.
- On Friday, markets recovered with a strong rally that brought the VIX back below $30.
- Corporate earnings continue to be a mixed picture and in this current market guidance is winning out against fundamentals. Fear rather than greed is driving investor sentiment.
- Trading sessions continue to be volatile. My perspective is, if you do not like the market’s current direction wait 5 minutes.
- Despite the increasingly common intraday swings from red to green and back again, the VIX is not showing its typically extreme levels. This is unfortunate as when this happens in my experience this usually suggests a market bottom is imminent.
- Cryptocurrency and technology continue to be some of the hardest hit, as inflation numbers prompt fears of a hard landing being imposed by the Fed.
- AAPL and MSFT are some of the last horses to fall meaningfully. After AAPL sold off last Wednesday, it lost the crown as the world’s largest company to Saudi Aramco ($2.43T vs AAPL 2.37T).
- S&P 500, NASDAQ and DJIA managed to rally sharply last Friday. Indices were set to record the largest weekly losses since January this year, but Friday’s rebound helped make this less negative (S&P 500 finished the week -0.83%).
- Despite the massive upside volume on Friday, overall volume was still sub-par and we think more volume is needed to cement market lows are in place.
- Key point to share with a client: Nearly 60% of all S&P 500 issues are now down 20% or greater from 52-week highs. Really? Is the US going out of business? Maybe I am wrong, but I do not think so…
- Both Index heavyweights AAPL and MSFT broke down to new multi-month lows over the last week, this is a significant psychological headwind for the indices.
- Based on my technical work, the S&P 500 should face meaningful resistance up near 4100. As of the time of writing we are seeing this.
- If AAPL & MSFT recoup $150, $270 prices respectively, I have more conviction that meaningful lows are in place and we are stabilizing.
UKRAINE WAR
- The highly anticipated Russian offensive in Ukraine’s eastern regions has not had much more success than their initial operations.
- As an FYI, the Ukrainians and Russians have actually been fighting in this same area since 2014.
- For you history buffs, it feels similar to the Germans fighting on the Eastern Front during WW2. Offensive gains were highly elusive and incredibly expensive in terms of lives and resources.
- This is one area where I still think tail risks for capital markets exist and that I continue to watch closely. After Vladimir Putin’s May 9th Victory Day speech, it does not appear as if he is afraid of a protracted conflict in Ukraine.
- I have commented on this before, the more Russia’s military appears inept, the more tempting it may be for Putin to escalate the usage of more extreme weapons.
GLOBAL ECONOMY
- The global economic slowdown and supply-chain interruptions in regions such as Africa and the Mid-East are real and I believe have the potential to create further political instability. This will create even greater demand for government support and companies committed to authentic impact investing.
- So far, the US is relatively insulated from the direct economic effects of the Ukraine conflict, but the Eurasian continent and global economies are beginning to feel the harsh consequences of this war.
- China, North Korea and Iran are all watching developments closely.
- I will write on this topic in the future.
NEWDAY PORTFOLIOS
- Our work suggests the combination of a hawkish Fed, elevated inflation, slowing global growth, rising interest rates, strong USD, continued geopolitical tensions, and an expected analyst profit cutting cycle are creating significant headwinds for US equity markets.
- Despite the doom and gloom and volatile nature of markets, our entire investment team believes this period will ultimately yield an excellent buying opportunity for our clients. There are a lot of attractive companies that are cheap right now.
- Both MSFT and AAPL are in our top 3 holdings across portfolios for good reason. This exposure has hurt Newday portfolio returns this year even with our reducing active weights. Our view has not changed. When the time is right, we will be adding to these positions.
- Newday’s job is to be an active investor. As such, we continue to focus our research on adding more pure-play ESG companies.
- In alignment with our investment process, these companies exhibit strong fundamentals including company earnings per share growth and consistency, ROE, beta, valuation, and market capitalization.
- There are clearly headwinds facing the US consumer, we are currently researching discount retailers, companies offering experiences vs goods and companies benefitting from moving away from the COVID “stay at home” theme.
- We are focusing our research efforts on data, process, and logic, and not letting our emotions drive decisions. Given the questionable outlook. We are digging deeper both from an ESG and fundamental research perspective.
- Overall, while the temptation is to try to chase rallies for fear of missing the bottom, we at Newday believe the better strategy is to wait for more convincing evidence of improving fundamentals.
- Given we are not seeing any of the above currently, I believe, markets currently will be in a “No-Man’s Land”, making them difficult to invest in. With this backdrop we remain selective and patient, we would encourage other investors to take the same approach.
Disclosure
This commentary is provided for information purposes only and is not an offer or solicitation of an offer to buy or sell any product or service. Unless otherwise stated, all information and opinion contained in this publication were produced by Newday Funds, Inc. (“Newday Impact”) and other sources believed by Newday Impact to be accurate and reliable. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions of the financial markets, general investment strategy, or particular investments are not recommendations to clients and are subject to change without notice.