Buckle UP! (TWTW – May 16-20, 2022)

Buckle UP!

That, was the advice of the ECB this past week, as it was telling banks to do just that, as the war in Ukraine was poised to hit the economy …

Markets … of course, also had to buckle up, as we saw again on Wednesday, with the DJIA dropping over 1200 and the S&P500 continuing to get perilously close to Bear Market territory.

Are we out of the woods yet? Doubtful … In fact, as we saw this past week with Target’s results and the stock immediately dropping by an eye popping 25% or so, companies are just beginning to see the impact of rising input costs, supply chain issues et al hitting, AND, we still have a China mostly in lock down mode, with massive blockages as far as container ships etc. THAT, will still hit us … although markets, clearly, have begun to reflect a lot of negative sentiment as has already been highlighted within the past two weeks.

For me, what continues to stand out is that when in a bear market, the trend is … well, down … and the buy the dip business is something to be EXTREMELY careful with, never mind that any counter trend rally is to be sold, rather than bought. THIS, IMO could continue on for a while yet, and cost all investors quite a bit of money, even after the significant declines witnessed from the highs.

So what should people look for?

Well, I haven’t like bonds for quite some time … BUT after the massive declines they have undergone, they again at some point will provide an offset to equity losses. The problem is that we still have that inflation business to deal with, which in the meantime suggests you have got to be careful with bonds also. NO WONDER many have pointed out that the 60/40 is “toast”.

I have added a couple of “regional” charts so you can see relative performance across geographies last week, as well as YTD. Something that jumps at you there, is that aside from Canada being a strong relative performer, Japan (RAFI version) has held up even better. Another area where you can possibly look to diversify? Personally, I am for the moment avoiding many geographies, until the dust settles somewhat …

By the way, another thing: I attended a First Trust Portfolios Canada presentation this past week, AND must say I think you seriously need to take a look at their Buffer product in the current environment 🙂 THAT too could be a way to save some relative performance and money for your clients 🙂

The upside from the strategy, according to the presenter, was the best he had ever seen it: upside cap: 16.9-20.10%; downside buffer: 10%. Capping one’s upside in the current context as the overall market bubble might continue to deflate is probably not the worst set-up when you are otherwise reducing your losses by 10% if things continue downhill from here … Think about it 🙂

Recent / Noteworthy developments:

  • Canada – bans Huawei from participating in 5G network, in a decision that … if I have ever seen an overdue one that was it …
  • Target missed and highlighted rising costs. What did not rise in the immediate aftermath of the results was the stock, which precipitously … nay, make that instantaneously declined by some 25%
  • Amazon – apparently is no longer a top pick at Citi following recent weakness … (maybe just maybe … doing so 6 months ago would have been more … useful?)
  • Tesla – was booted out of an S&P ESG index, leaving Elon furious … => Click HERE to read more!
  • Horizons ETFs – recently launched a “copper” ETF aka Dr Copper, the perennial indicator of whether the economy is on the up and up, OR heading downhill. For Steven Hawkins views on the outlook for Copper = Click HERE!
  • or HERE!
  • JPMorgan shareholders – recently handed the company a rare rebuke (according to CNBC) in the form of disapproval of retention bonus for CEO Jamie Dimon … (did he really need more Money? just sayin’)
  • The FED – last week talked about the “landing” … Powell apparently said: “sometimes the landing is just perfect, sometimes it’s just a little bumpy. It’s still a good landing, you don’t even notice it”. BTW next FED meeting (50 bps all but a given): June 14 and 15. Note: That kind of talk makes me nervous … we won’t notice it? I wish … He wishes … let’s all wish. Just not sure we’ll get our wishes …

latest weekly performance:

Sectors; Themes; Factors; Regions

  • Consumer side hit hard by what I’ll call the Target effect, which side swiped Costco, and a number of other retailers as well.
  • Materials; Industrials doing better = the recent sell-off causing some to revisit the more constructive side of the outlook aka the one where we don’t get into a recession?
  • Energy – kinda feel like the Energizer bunny to me this year … EVERYTHING isn’t exactly doing well … ENERGY: keeps on keeping on …

  • The above picture in my books possibly cause for some reprieve / some possible optimism. After all, once we start seeing some doing better while the one that had held up so much better is now the worst performing (aka CYBER) – isn’t it possibly a signal that the severe sell-off might just be abating?

  • Using a song title analogy, I’d say “the Songs remain the same” – namely overall the factors that have held up better continue doing relatively better …

  • Just added regions this week, for the seek of keeping an eye on how the bear market is proceeding. Takeaway: It seems to remain US centric at the moment …

YTD Performance:

Sectors; Themes; Factors; Regions

  • Consistent / persistent story: ENERGY works; everything else continues to struggle
  • Defensively speaking, Utes; Healthcare and staples continue to provide hiding spots
  • Financials – I guess the recession / stagflation risk for the moment is overwhelming the notion that interest margins will do better as rates rise …

  • A bear market in Thematic that is / was severe, nonetheless highlights some relative performance differentials that are probably helpful in terms of understanding the market’s views of the relative opportunities and risks.
  • Amazing how quickly the Metaverse saw huge losses … considering it is the future of the internet … at some point worth looking into, no doubt.

  • Do more of what works, less of what doesn’t used to be a Dennis Gartman saying that he used over and over (and which … well, let’s not kid ourselves, why wouldn’t we want to do that )… Anyways, looking at the above, this says continue to play “Value” / Fundamental / Min vol and Dividend for Canadian exposure, all of which are besting and continue to best the market here.

  • Places to hide? did you realize how much better Japan is faring this year? Relatively speaking? ok and so is Canada … As for the rest – dragged down by US exposure … With S&P500 close to Bear market territory, which … imo no doubt we get into shortly, if even only as a way of testing everyone’s nerves …

Be careful out there, enjoy the week-end 🙂