Responsible Investor is a weekly newsletter and an Apple/Spotify podcast for those who are interested in investing responsibly. Go to responsibleinvestor.dk for more information and to read our disclaimer. This week's newsletter is titled "Is there an AI bubble in the stock market?", and was written on May 27th, 2023.
Weekly summary in a paragraph
The US stock market indices finished mixed this week, with the Nasdaq jumping 2.5% supported by Nvidia's blow-out earnings report. The European stock market tanked on Germany entering into a technical recession after two consecutive quarters with a negative GDP. The 2-10y spread widened and has now an inverted value of -74 basis points. It was a slow week for economic data. In corporate news, Nvidia's earnings exceeded expectations by a large margin as did their guidance. In the department store sector Target disappointed while Low's beat expectations. While most S&P500 companies have now reported Q1 2023 earnings, there are still a few to watch next week including Broadcom, Crowdstrike, Salesforce and Five Below.
Asset classes weekly performance
This week the Dow finished -1.0% lower (-0.2% year to date) while the S&P500 gained +0.32% (+9.5% year to date), the Nasdaq jumped +2.5% (+24.0% year to date) and the Russell 2000 finished flat (+0.7% year to date). Gold finished -1.5% lower (+3.8% year to date, we are long) while Silver lost -1.7% (-4.7% year to date). Oil gained +1.1% (-5.4% year to date). The 10-y US treasury yield rose sharply by +2.45% (+0.45% year to date). The European stock market finished -1.8% lower (+17.2% year to date). The Euro lost -0.9% against the US Dollar (+0.2% year to date).
Weekly pitch
While no political agreement has been reached on the US debt ceiling this week, the chances of this crisis being resolved this week is considered likely. Last week we warned on the risk the stock market faces is the drying up of liquidity as one trillion USD worth of bonds will have to be issued. The Nasdaq has suffered from the rise in interest rates in 2022 and lost 33%: the prospect of a pause and subsequent reduction in rate hikes has pushed it higher in the first quarter of 2023 and the recent AI frenzy has only exacerbated this move. Tech is the sector most at risk by a contraction in liquidity and might bring the Nasdaq rally to a screeching halt. Responsible investors should exercise caution and maintain a healthy proportion of their portfolio in cash and hedges as well as a diversified portfolio with some exposure to the European stock market.
Weekly Portfolio Update
Here are this week's movements: we took profits on our Fielmann (+11.9%), Zoom (+8.9%) and Fortinet (+3%) long position and partial profits on our Gold ETF (+10.4%) long position; a partial sell stop was triggered on our New Relic long position. We initiated a long position on Desktop Metal, a potential buyout target. Cash, precious metals and hedges amount to 41% in our portfolio (unchanged compared to last week).
Top 5 Weekly Portfolio Performers
Plug Power +8.4% (Electronic Tech)
The Gap +7.2% (Retail)
ProShares UltraPro Short Dow30 +6.3% (3x inverse the Dow)
MP Materials +4.5% (Non energy minerals)
iPath Series B S&P 500 Vix Short-Term Futures ETN +3.6% (Volatility ETN)
Portfolio Asset Allocation
US Long stock positions 49.5% (unchanged)
EU Long stock positions 9.5% (unchanged)
US Short stock position 3% (reduced)
Hedges 7.5% (unchanged)
Silver & Gold 2.5% (reduced)
Cash 28% (increased)
1-year Portfolio Performance
Our portfolio performance over the last 12 months is +5.9% (excl. dividends) vs the S&P500 gain of +1.1%, which corresponds to a +4.8% market beat.
Invest responsibly!!!
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