Focus: Diversification check-up
US equities have rallied hard, and we see lower returns ahead, putting a focus on diversification. But traditional investment alternatives like cash and bonds are even more expensive, and our investor survey shows many unsure of what to do, and not rebalancing regularly. We look at three equity alternatives to help lower risk and increase diversification, such as 1) defensive rather than disruptive tech (CopyPortfolio’s like @Four-Horsemen), 2) financials (with ETF’s like XLF) and international equities, and 3) equity styles — from high dividends (HDV) to mid-cap (MDY) and low volatility (SPLV).
Steady as she goes
Another positive week for global equities, resilient to Friday’s very weak US jobs report and with stabilizing Chinese equities. Booming NFT interest helped push crypto assets higher, whilst commodities benefitted from a weaker USD. Widespread concerns on traditionally weak September market seasonality are overdone. We think the real risk focus should be on the US political stand-offs over raising the $28.5 trillion Federal debt ceiling and passing Democrats’ massive $3.5 trillion (15% of US GDP) stimulus plan. See our global markets summary presentation here for background.
The road to S&P 500 over 5,000
Further earnings upgrades and lower US 10-year bond yields combine to boost our ‘fair value’ S&P 500 valuation, and give a clear roadmap to the US equity index trading over 5,000 at the end of next year.
Opportunities in start-up nations
The world’s smallest countries have some of the most innovative companies and best investment returns. Our Start-up nations index has consistently beaten global equities. But this also likely understates the performance as many of the most successful companies only list on overseas stock exchanges.
Non-fungible token driving crypto
Bitcoin (BTC) saw a positive week, taking back near $50,000. Altcoins continue to lead the price recovery, with Ethereum (ETH), Solana (SOL), and Polkadot (DOT) all benefitting from the recent surge in non-fungible token (NFT) trading. This has driven the rate of Ethereum ‘burning’ higher and cut the net supply outlook.
Breakfast costs surging with the Ag rally
Our ‘Breakfast’ cost index is now up 46% the past year as ag prices from wheat to sugar have surged. A forecast La Nina weather phenomena could push prices further. Consumer food stocks, from General Mills to Kraft and emerging markets are seeing the biggest impact.
The week ahead: A short week, and the ECB
1) Shortened week with US and Canada markets closed for labour day on Monday. 2) European Central Bank (ECB) could cut its €80bn/month bond buying, pushing bond yields. 3) Earnings from meme-leader GameStop, ‘athleisure’ Lululemon, UiPath, and Kroger.
Our key views: Staying the course
We see a positive outlook of 1) vaccine rollout and economic re-opening, and 2) still huge policy support, offsetting virus third wave and Fed tightening risks. We favour assets most helped by this growth rebound: equities, commodities, crypto, and value, and are cautious about 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.