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Capital 19 Catch-Up

Weekly Index Movement

S&P500+1.5%
Nasdaq+0.6%
Aussie All Ords+4.4%

Another rollercoaster week for global stock markets saw the quarter get off to a good start with large gains on Monday and Tuesday but stocks gave up the ground they made by the time it all closed on Friday.

The initial gains happened because of a decline in job openings. The JOLTS report is a bit like looking on seek.com for how many job adverts there are. It was running at 11 million but dropped to 10 million last month.

We are currently in one of those “bad-news-is-good-news” periods. The thinking on Monday and Tuesday went:

Less jobs being advertised means less power to the employee which means they have less money to spend and so the Fed won’t need to raise rates as aggressively to slow inflation.

Seems a pretty weak reason for stocks to jump almost 6% to us, but it just goes to show how greedy and positive investors still are. They only needed the slightest reason to start buying and away they went.

This gets exaggerated in bear markets because the traders with short positions buy them back as the market starts to rally which leads to further gains etc.

It is what makes bear markets so exciting and volatile.

But all this enthusiasm was pushed aside on Friday when the monthly unemployment number came out and showed the unemployment rate fell from 3.7% to 3.5%.

Stocks fell 2% on that news because while normally it would be good news for the economy, we are living in “opposite world” where good news sends stocks down.

Australia received some good news of its own this week with the RBA only adding 25bps to the overnight rate rather than the expected 50bps. I agree with them that the impact of past rises has not yet fully filtered through and so they can take a watch-and-see approach for now. It’s just a shame we don’t have much of a technology sector to benefit from this lower than expected move.

Next week is going to be an important week for US stocks. We will get two different inflation measures and the banks will start reporting earnings to kick off the corporate profit season off.

Anything could happen here but I’m expecting inflation to come in very close to last month and be a non-event. Bank earnings also won’t tell us much. We will have to wait another couple of weeks for the big guns to show if they have been able to maintain profit growth whilst their share prices have tanked.

There is one sector that remains a buy and now is the time to take advantage and that is Energy.

For decades the US has been stockpiling oil reserves. They call it Strategic Petroleum Reserves, or SPR. It was sitting around 650 million barrels. Biden signed an order several months back to release 1 million barrels per day to help ease petrol prices.

It worked. That greater supply hitting the market saw oil tumble from the $120/barrel high down to as low as $76/barrel.

Lower oil prices mean lower profits for oil companies and so stock prices fell in unison. Chevron (CVX) came down from $180 to $140.

It also means lower profits for oil-producing nations and this week they hit back at Biden with OPEC+ reducing oil production by 2 million barrels per day. It was a see-you-and-raise move that Biden cannot outbid.

The SPR is already down to levels not seen since 1984. Since the SPR was really built up to combat an oil supply shock, Biden is running a tightrope and must cease releasing the reserves soon. Imagine the fall-out if something happens to oil production and those SPR are actually needed for their intended purpose.

Oil is already back up to $93

Just about any oil company is a buy here. We like Chevron (CVX), Occidential (OXY) or you could just grab an ETF like IEO.

On the topic of Oil, I was very interested in the news of the sabotage of the Nord Stream pipeline. That basically ends the ability of Russia to transport gas to Europe.

Western media will have you believe the Russians blew up their own pipeline. The claim is a classic move by Russia to destroy their own asset to then enable them to justify some kind of retaliatory move against the West.

I don’t buy that story.

Follow the money always finds the truth and the money flows like this:

Europe is buying gas from the US because they can’t get it from Russia. This is generating large profits for US gas companies. Which would all disappear if Europe decided lower energy prices was more important than woke votes and agreed to buy gas from Russia again. (I’m looking at you, Giorgia Meloni, new far-right prime minister of Italy.)

But if the pipeline is not there anymore, Europe can’t make that decision, so why not use the cover of a war you are fueling with weapons to ensure many, many years of European dependence on the US.

To take advantage of this buy Cheniere Energy (LNG) the large US gas producer. In fact, let’s add it to our Catch-Up stock tips.

CatchUp Stock Tips

Buy LNG for the reasons listed above with a stop at $120

Buy DateBuy PriceCurrent PriceGain / LossStop Loss
TXN1 Aug 22177.94159.28-10.50%145.00
ASC8 Aug 228.529.53+11.9%6.40
CDNS15 Aug 22188.83158.90-15.9%130.00
UNH22 Aug 22541.39505.85-6.6%450.00
GMS5 Sep 226.505.97-8.2%4.00
AAPL12 Sep 22159.59140.09-12.2%130.00
CRK19 Sep 2218.2217.67-3.0%12.00
AJL27 Sep 220.120.105-12.5%0.09

All the stocks in the list above remain a buy. You can get them cheaper than we did at present so take advantage while you can.

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.

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.