Focus: Big Tech in the spotlight
The gathering regulatory storm clouds against the ‘big tech’ sector are back in the headlines. The so-called FAANGs, from Facebook (FB) to Alphabet (GOOGL) are 20% of the US market so it matters for all. It will be a long and complex process, and we see much as already discounted in valuations. Counter-intuitively any eventual worst-case remedies could be positive. We prefer cyclicals right now, but see big tech as better-supported-than-feared, with still strong growth, balance sheets and cash-return policies. See @Four-Horsemen.
A strong June ends a strong first half
Global equities rose 0.4% last week, to close June up 1.9% and a very strong 1H. Tech and consumer discretionary led performance, on lower bond yields and robust economic growth data, whilst financials lagged. USD surged on expectations for an early rise in US interest rates. We are watching the messages from the bond market, signalling some growth concerns. Also weak seasonality with July traditionally the weakest month, but history may be scrambled by the covid recovery.
Room for more in the second half
We see further increases to GDP and earnings, more than offsetting lower valuations as the Fed starts to tighten policy. Returns will likely be lower than those seen to-date given the strong start, high valuations, and a now better priced growth recovery. Volatility will also likely be higher with VIX at a post-pandemic low. We are positive on equities, commodities, and crypto, and see cyclicals leading a broad rally.
Renewables theme focus
A globalising and higher carbon price is inevitable, and will both drive renewables themes, such as @Renewable Energy and TAN, but also increasingly impact polluting sectors, such as @OilWorldWide and XLE. Though this may also drive short-term imbalances, as we see in the oil market now.
Crypto-asset performance stabilizing
Bitcoin (BTC) continues its month-long consolidation around US$33,000, half highs but still +15% YTD. Altcoins were stronger, reflecting their dramatic 1H outperformance and with bitcoin ‘dominance’ below 50%.
Oil prices leading commodity rally
Oil has surged, with Brent rising to over US$75/bbl as OPEC+ likely to only modestly increase supply, even as demand rebounds strongly. We also see longer term supply concern building.
The week ahead: What’s the Fed thinking?
US Independence Day holiday (Mon) to see a shortened trading week. US focus is on the forward-looking services ISM, a proxy for 70% of the economy (Tue). Also, the minutes of the Fed’s June meeting (Wed), with the market focusing on any ‘tapering’ talk on current US$120bn/month bond buys. Global, focus likely on German ZEW sentiment survey to gauge economic rebound (Wed), and China’s rising inflation (Fri), as they consider tightening measures.
Our key views: Focus on the growth
We see the outlook of 1) accelerating vaccine rollout and economic re-opening, and 2) unprecedented policy support. It’s too early to worry that the Fed will derail the rebound by tightening policy. Focus on reflation assets: equities, commodities, crypto, and value. Relative caution on fixed income, USD, defensive equities and China.
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.