22 Apr 22nd April 2024
Weekly Index Movement
| S&P500 | -3.0% |
| Nasdaq | -5.4% |
| Aussie All Ords | -2.9% |
Nothing stays the same in stock markets for long. Five straight winning months without a 2% decline were then followed by three straight down weeks, featuring a rare six-day S&P 500 losing streak and five successive sessions last week of failed intraday rallies.
As with all market retrenchments from a record high, the current 5.5% setback in the S&P 500 is accompanied by a litany of proximate causes, ready excuses and plausible cover stories — in addition to the simple “we were due” catch-all.
Is it because economic data is coming in strong and reducing the chance of interest rate cuts? The bond market thinks this is the case and the 10-year yield has gone from 4.2% to 4.6% in the last three weeks. This is the main drag on stocks.
Or is it due to geo-political conflict in the Middle-East?
Or is it just the typical April seasonal pattern in an election year?
The answer is – who cares? This is just short-term. There is nothing going on here to stop the long-term bull market. All we have is your garden variety correction. So you should buy it.
The S&P500 is now down over 5%. Will it get to being down 10% for an official correction?
Again – who cares?
It is down 5% now so I am going to start buying. What if it goes another 5%? I don’t care because we are in a bull market and prices will recover. None of us are ever going to pick it exactly, so roughly is good enough when it comes to stocks.
Peter Lynch once said “more money has been lost by investors fearing a market correction than by market corrections”
Take this opportunity for what it is and buy. Don’t worry if it goes a down a little more after. Prices here are good enough and the Bulls will regain control again shortly.
Have stocks peaked for 2024?
What if I am wrong and stocks have peaked?
I always like to ask the opposite question and see how convincing an argument I can make. Given concerns about rising yields, uncertainty about Fed rate cuts due to still-high inflation, and escalating geopolitical tensions, it is fair to ask this. Therefore, I pulled the data on when the S&P 500 has peaked each year back to 1980 – capturing what I consider the “modern” stock market – to see what it can tell us about 2024.
Some points on this data
- The S&P tends to peak in the 4th quarter of a year, having done so 71% of the time since 1980.
- Add in January and you get to 82%
- It would be very unusal for the S&P to peak in March.
A March peak for the S&P this year would require a powerful negative catalyst to develop from here. History says this could be an economic surprise (i.e. Fed policy mistake, rate hikes) or geopolitical shock (oil price spikes).
But it is much more likely we will see highs come late in the year, which makes this week a buying point……..
Tesla
As you know, I am not a Tesla fan. It announced last week a 10% cut to its global workforce amid a global slowdown in electric vehicle sales. Alongside a $2,000 price reduction on vehicles sold in China.
Meanwhile, Chinese rival BYD announced three new models to compete with Tesla and you will recall Chinese mobile phone maker Xiaomi released a model aimed squarely at the Telsa Model 3.
The stock is now 60% below its 2021 peak.
It has further to fall. Get out while you still can
While on this topic, look how the clean energy sector has been performing against the old “dirty” energy sector.
The problem with clean energy is it costs too much to invest in the infrastructure to make it. If governments continue on this path, they will have to print money and you know where that leads……..
Which brings me nicely to……..
Oil
Energy is the only sector showing a gain this quarter (+0.6 percent) and has outperformed in 2 of the 3 weeks since the start of Q2. It remains the best performing sector of the S&P 500 YTD. I know you all have an allocation to Energy right? Because I have been on and on about making sure you have some exposure for years now.
I know you are glad you bought those oil companies and are still holding them.
But it seems some people still haven’t bought any and have been asking me which oil company to buy.
This one is my favourite.
Petrobas (PBR) listed on the NYSE.
Petrobas is a Brazilian (Oi tudo bem – to all my Brazilian readers) company that trades on the NYSE in USD.
As you can see the share price has been steadily rising for the past year, but it is the dividends that I really like. Even if we take the current price of $15.79 to work out the yields they are impressive (would have been even more impressive at the time because the stock price was lower in prior years)
Check this out.
2021 – Dividend $2.08 – yield 13%
2022 – Dividend $6.58 – yield 42%
2023 – Dividend $2.94 – yield 19%
You never know what you will get as a dividend as there seems to be little consistency. But it definitely gets larger as the oil price increases. Imagine how happy I was in 2022 with this holding.
If you want exposure to Oil and/or like a decent dividend. This is one for you.
Jimmy’s Corner
Destiny Tech100 Inc ETF (DXYZ)
Say you want to own buzz-worthy, disruptive technology companies that have not yet gone public, but you do not meet the criteria for investing in them. In other words, you are neither wealthy nor well-connected.
Ordinarily, you would be out of luck, but now you can play in the same ballpark as billionaires and celebrities. The Destiny Tech100 ETF owns some pretty hot companies, such as Elon Musk’s SpaceX (35 percent of the portfolio), Fortnite maker Epic Games (4 pct), and ChatGPT creator OpenAI (4 pct). It currently has 23 holdings but, as the name suggests, is looking to get that to 100 investments.
But, there’s a catch.
DXYZ trades for about 10x its net asset value. Put another way, its price assumes that once every one of its holdings is either acquired or goes public their value will be 10 times their most recent valuation.
DXYZ is currently a day trader meme stock, which means its volatility is simply astounding. If markets get truly volatile and it drops significantly, it might become a reasonable speculative play on a recovery in equity valuations.
Australian Vanadium LTD (AVL)
This stock at a price of 0.016 (at least at the time I am writing this), is a vanadium developer that operates in exploration and energy storage. Recently, this company merged with Technology Metals Australia and now owns 100% of the Australian Vanadium Project in Western Australia.
What is Vanadium? It a silver metal that has a natural resistance to corrosion and stability against alkalis. So, what is AVL doing? They are aiming to provide battery storage for Australia’s power grids. Currently, Australia is replacing fossil fuel powered energy storage with long lasting sustainable forms of storing power.
AVL have Vanadium Redox Flow Batteries which are perfectly suited for this. These batteries provide a renewable energy solution, have a lifespan of 20 years, offer immediate energy release and can be reused.
Along with the production of the batteries and aspiration to provide energy storage across Australia, the outlook for Vanadium production and mining is looking quite promising. Vanadium demand growth is expected to be strong with the switch to renewable energy being very prominent as well as very limited supply expected to enter the market. We know that this outcome would result in the price of Vanadium going up, making AVL more profitable.
Next Week
We could have a big week ahead of us.
On the economic data side, the advanced reading of first quarter economic growth is slated for Thursday, followed by the March reading of the Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, on Friday.
In corporate news, a slew of S&P 500 companies are expected to report quarterly results headlined by Meta (META), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Tesla (TSLA), and Chipotle (CMG).
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.