Weekly Analyst Update — May 16


The long winter for Growth stocks

Tech-led Growth (IWF) stocks sold off this year, and Value (IWD) is back into fashion. Lessons from the 2000 ‘tech bubble’ is that the Growth ‘winter’ could last. Relative valuations are still high and some earnings pulled forward by the pandemic. The low inflation and interest rate world is gone. Growth catalysts are stabilizing bond yields or a recession, but likely only for ‘big-tech’. We stay invested, focused on Value stocks.

Near a 20%’ ‘bear’ market drop

A sixth straight week of down markets saw S&P 500 close to the -20% ‘bear’ market level. US inflation stubbornly stayed over 8%, and Fed talking 0.5% rate hikes, whilst big equity volatility dramatically spread into crypto. Value equity segments stayed resilient with Growth and tech seeing the most pain. Fundamentals stressed but secure with Q1 profits growth 10% in US and 40% in Europe. See latest presentation, video updates, and twitter @laidler_ben.

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The start of US inflation relief

US May inflation a key inflection point, declining to 8.3%. Normalization will be a long and volatile road but peak likely been seen, allowing gradual ‘less bad’ relief to stressed markets.

Companies didn’t get the ‘crisis’ memo

Companies did not get the market crisis memo. Earnings and capex are rising at double digits and acquisitions continuing. This is a valuation-led sell-off with fundamentals firm.

Australia a ‘lucky’ country haven

Australian equities (AUS200) been resilient, as part of return to Value; overweight commodities and underweight in tech. Rising interest rates could help the big financials sector.

Bitcoin caught in a double sell-off

Double whammy of high equity volatility and TerraUSD depeg drove sell-off, and opportunity for growing institutional investors.

Crypto slumps on stablecoin depeg

Sharp sell-off took Bitcoin (BTC) and Ethereum (ETH) below key $30,000 and $2,000 levels, and market cap. of asset class to $1.3 billion. Depeg of 3rd largest stablecoin TerraUSD, and collapse of paired Terra (LUNA), drove concern across crypto. Other stablecoins held 1:1.

Commodities wobble on China fears

Commodities eased on US dollar strength and concerns in no.1 importer China, as lockdowns continue and imports stall. Copper and aluminium among metals most exposed, with China 50%+ of demand. Ag bucked downtrend. Remain in a commodity ‘sweet spot’.

The week ahead: Taking a data breather

1) A rare break from the data onslaught, with ECB minutes the highlight, as they consider a July hike start. 2) Big country ‘G7’ finance and central bank heads meet as key global issues mount. 3) Successful Q1 earnings season winds down with US retailers WMT, HD , TGT, LOW.

Our key views: All about valuations now

Markets seeing biggest sell-off since 2020 covid crash, as bond yields crush valuations, and overwhelm decent earnings. Fundamentals are stressed but secure. See relief from ‘peak’ inflation, and China stimulus. Focus on ‘barbell’ of cheap Value cyclicals and ‘defensives’: Value, commodities, alongside healthcare, and high dividends. We are cautious on bonds.

Written by a team of experienced financial analysts at eToro.

This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.

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