Below are Evergreen Gavekal's Likes/Dislikes for September 17th, 2021.
OUR CURRENT LIKES AND DISLIKES
Changes highlighted in bold.
The US stock market’s mild correction has continued this week. To quantify “mild”, it is now down a mere 2.2% from its all-time high set last month. However, certain market sectors have been hit much harder than that including some commodity-oriented stocks, even those with healthy fundamentals such as gold, silver and copper miners. The latter two are beneficiaries of the great Green Energy Transition (copper for electric vehicles and silver for solar panels).
My recommendation is to continue to dollar-cost-average into the shares of these companies, including the gold miners. Negative real, or after-inflation, interest rates have historically been highly beneficial to commodities and commodity-producers.
Energy, on the other hand, remains firm with the main ETF rising slightly as the S&P has mildly declined. By far the strongest sub-sector within energy recently has been natural gas. Evergreen Gavekal’s favorite natural gas company has risen 25% this month alone (after an extended phase of lackluster performance).
Longer-term treasury bonds are beginning to soften a bit. The 10-year T-note is now down about 1.2% in price from its August peak. It doesn’t sound like much but that’s enough to erase a year’s worth of income for anyone who bought it at the top. In my view, bonds are vulnerable to a much more serious sell-off.
This week’s retail sales report was much better than expected, indicating US consumers willingness to do what they do best—consume—despite Delta variant concerns and its inhibiting impact on daily life. It continues to be my view that there will be a second surge of economic activity as Delta infections decline meaningfully. The wildcard would be another variant that is more contagious and virulent.
Encouragingly, in Sweden, the one European country that did not lock-down due to Covid, even last year, Delta has not created a material infection spike. Some of its neighbors are adopting its more relaxed Covid coping tactics.
We continue to come down on the side of those who believe inflation will be more problematic and long-lasting than does the Fed and, frankly, most investors. According to a recent survey, 75% of institutional investors believe in the Fed’s transitory narrative. Consequently, should the CPI continue to run hot, the market reaction is likely to be material.
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.