Taking a healthy performance breather
- Global equities took a healthy performance breather last week, easing 0.2%, and leaving up +8.9% YTD.
- Defensive sectors real estate and healthcare rose, whilst cyclicals energy and discretionary fell most.
- We think high valuations remain well supported by a still under-estimated GDP and earnings recovery.
- Our top-down investor sentiment index is very high, and normally a negative, showing a lack of potential new buyers. But bottom-up indicators show a much healthier situation, with the recent calming of prior high-flying segments, such as IPOs, EVs, and solar.
Good news as enter peak earnings week
- Q1 earnings reports are coming in much stronger than expected, and are a crucial market support.
- The percent of companies ‘beating’ forecasts is a high 85%. Consensus now forecasting 34% earnings growth from US versus Q1 last year, and 61% from Europe. Over 1/3 S&P 500 are reporting next week.
- However, markets are punishing those who miss expectations. Netflix (NFLX) fell 7% last week after Q1 new subscribers fell below expectations as lockdowns eased and ‘streaming wars’ accelerated.
Climate focus boosts renewables
- Earth Day and the 40-nation climate summit last week saw many sharply increase pollution cut promises.
- The cost of carbon is going to rise a lot, pressuring polluters and benefitting renewables. Europe leads, with prices surging to over US$50 per ton of CO2 emitted. Whilst the world average price is estimated at only US$2/t, showing the big catch-up to come.
- This boosted large renewable stocks, such as VWS, XEL, ENPH, and related ETF’s (TAN), that had seen some profit-taking this year after 2020 strength.
Crypto-currency tax pressures in context
- A potential US capital gains tax increase drove a sharp sell-off across crypto-currencies, the asset class with the largest gains given recent rally.
- Impact may be overdone as would only apply in the US; to those earning over US$1m; is likely to be revised by the divided US Congress; is to fund stimulus plans that will boost inflation; and may just increase average crypto-currency holding periods.
- Uniswap (UNI) and Chainlink (LINK) were added to the eToro platform, taking total tokens to 18.
Commodities have rare room-to-run
- Commodities have been a tough place for investors over the last decade, with the Bloomberg commodity index underperforming the S&P 500 by a huge 350%.
- But commodities are leading equities this year, and we think this has room-to-run as benefit from a rare combination of 1) strong GDP growth, with still-tight supply, 2) rising inflation, and 3) a weaker USD.
- We see industrial metals (copper, nickel, aluminium, battery materials) best placed to keep leading.
The week ahead: focus on the Fed
- Fed meeting (Wednesday). No change, as they wait for “substantial further progress” before tightening policy.
- US Q1 GDP (Thursday) likely to see a surprise, with NOWcasts forecasting 7–8% annualised growth.
- Is peak Q1 earnings week, led by ‘big tech’ (AMZN, APPL, FB, GOOG, MSFT) who are expected to see average 53% earnings growth. Also TSLA, BABA.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.