Below are Evergreen Gavekal's Likes/Dislikes for October 8th, 2021.
OUR CURRENT LIKES AND DISLIKES
Changes highlighted in bold.
The S&P 500 started the week with a thud, continuing the correction that started last month. However, its remarkable resilience reasserted itself over the next few trading days by clawing back almost 3% which almost exactly what it is now down from the early September peak. Barring a late day swoon, this will be the S&Ps best week since June.
The postponement (can kicking?) of the debt ceiling impasse definitely provided a boost. This avoided what could have been the catalyst for an October market bloodbath had the US defaulted. Even today’s weaker than expected employment news hasn’t fazed stock prices. Nor has the continuing rise in the 10-year treasury note’s yield to slightly above 1.6%. That is up over 4/10% (about 43 basis points) from this summer low point.
Delta infections continue to recede, improving the odds of another reopening spurt, similar to last November’s vaccine-driven surge, though likely not as strong. It remains my view that the next few quarters should bring surprisingly robust economic news as a function of both a relaxation of pandemic restrictions and the gradual release of roughly $2.5 trillion of excess household savings built up during the lockdowns. This bodes well for continued outperformance by more cyclical stocks.
Another boost for value issues is the rise in longer term rates with short rates staying down. This creates a steeper yield curve (greater spread between long and short rates), benefiting the financial sector which is one of the most important in the value universe.
Energy continues to be in the spotlight, particularly in Europe. As noted in today’s main EVA section, natural gas prices on the Continent are now the equivalent of $200 a barrel oil! Consequently, Europe is experiencing a full-blown energy crisis, as is much of Asia. The Chinese government has instructed its power providers to secure energy resources regardless of cost.
Based on what’s happening in Europe and Asia, it’s probable that countries will build up considerable reserve supplies of oil, gas, and, even, coal to avoid future debilitating shortages once current extreme prices recede somewhat. This should further increase the demand for traditional energy sources. One of the worst aspects of this third energy crisis (the first two being in the 1970s) is how much coal usage has increased since this is the dirtiest form of fossil fuels.
Evergreen continues to be bullish on the energy sector, as well as other natural resource-based securities, including those that are essential for the transition to renewables and electric vehicles. We believe the Green Energy Transition requires a realistic and gradual shift from fossil fuels to renewables to avoid the type of chaos being seen in Europe presently.
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.