Below are Evergreen Gavekal's Likes/Dislikes for October 1st, 2021.
OUR CURRENT LIKES AND DISLIKES
Changes highlighted in bold.
The mini-correction that has been playing out in the stock market over the past month became less mini this week. The S&P retreated 4.65% in September and we’re now entering the often plunge-prone month of October. Moreover, the bond market continues to weaken with the 10-year T-note having pushed near 1.6% earlier this week, up from a low of 1.17% this summer, before falling back down to just below 1.5%.
However, there are two pieces of distinctly positive news. First, Delta infections continue to fall, supporting the views of those (like this author) who believe the worst is over for its proliferation. Second, Merck announced today that Phase III trials of its Covid anti-viral revealed a 50% reduction in deaths and hospitalizations compared to the placebo group. These results were robust enough to cause Merck to ask the FDA for emergency approval of its med known as molnupiravir (admittedly, not the catchiest of names; it’s time to call in the marketing department!).
Accordingly, this news strengths the odds of the scenario I’ve been describing of a second reopening surge for the US economy (the first being after last fall’s vaccine announcements). If so, it is highly likely to revive the performance of more economically-sensitive stocks which have struggled since Delta went viral in recent months. Energy shares continue to be favored by Evergreen and they have been showing commendable resilience during the recent mini-correction. Precious metals, unfortunately, have not. We remain bullish on their prospects though we concede higher bond yields are a negative.
On the other hand, we expect real (after-inflation) yields to stay in minus territory for many months, if not several years. If that view become widely embraced, we expect a significant rally by the extremely out-of-favor gold and silver miners. (What a difference a year makes! In the early fall of 2020, this group was going vertical, causing Evergreen to do extensive profit-taking.)
Overseas, the evolving energy crisis is hitting both Asia and Europe extremely hard. In China, a multitude of factories are being taken off-line due to power rationing. This will aggravate global supply chain problems and create even more “transitory” inflation. For Europe, the energy shortage threatens some countries with another recession, particularly in the UK where a number of utilities are on the brink of failure and/or nationalization. Welcome to the wonderful world of recurring energy shortages!
From an investment standpoint, we think this reinforces the need to invest in scarce resources. This should be particularly rewarding where there are strong and persistent pressures working against increased supply (such as in the case of oil and natural gas).
DISCLOSURE: This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any opinions, recommendations, and assumptions included in this presentation are based upon current market conditions, reflect our judgment as of the date of this presentation, and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal. All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed and Evergreen makes no representation as to its accuracy or completeness. Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities. Evergreen actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time.