The Big Portfolio Refresh, May 2023
Updating my portfolio holdings, market outlook
On the first of each month I publish my big portfolio refresh to update my market outlook and discuss implications for my portfolio.
In this issue:
FOREWORD
SIGNIFICANT OBSERVATIONS
MARKET OUTLOOK
MY PORTFOLIO
Portfolio Objective
Asset Allocation
Current Holdings
Performance
Recent Trades and Positioning
ETF-only Portfolio Alternative
FOREWORD
As the mega-cap stocks continue to lead the major US stock indexes higher, my preference is to not chase this equity rally but rather to exercise patience while remaining defensibly positioned. Without knowing where or when the top of this rally will occur, I expect significant equity downside over the coming quarters.
Trying to nail down a precise recession or market downturn timeline is very difficult, so rather than trying to forecast precise timing, my primary focus is risk management with a sensible asset allocation for the current market environment.
When a market bottom is finally upon us, the opportunities for growth will be immense and my portfolio is built to take full advantage of such opportunities when the time arises. In the meantime, preservation of capital is key.
SIGNIFICANT OBSERVATIONS
M2 Data: As noted by Tom McClellan via Twitter: “Latest M2 data released April 25 showed slight upward revisions of the last 4 months' readings, but still falling 4.0% from a year ago. It is an even bigger drop when measured in terms of GDP. This is not bullish for stocks.”
Amazon starts layoffs: On April 26 Amazon began laying off some employees in its cloud computing and human resources divisions. The layoffs are part of the previously announced job cuts that are expected to affect 9,000 employees, on top of the 18,000 job cuts that took place earlier this year and last November. According to intellizence.com, since January 1st, 2023, 1321+ companies across various industries have announced layoffs, with the technology layoffs being particularly prominent [last updated: April 23, 2023]. In 2022, 3150+ companies announced layoffs.
42 Macro CACRI: Our friends at 42 Macro suggest that systematic funds are likely reducing exposure to risk assets — clearly a negative for stocks in the medium-term.
Posted on twitter by 42 Macro April 26 Good Earnings in Q1: In my portfolio, 24 companies reported quarterly earnings in April. Of those, 20 beat earnings, 1 matched and only 3 missed estimates.
GDP Slowing: Gross domestic product rose at a 1.1% annualized pace in the first quarter, below the 2% estimate. Slumping inventories and a general decline in private investment held back early year gains. Inflation was higher than expected in the quarter, with the PCE price index rising 4.2% against the 3.7% estimate. (via CNBC, April 27)
S&P 500: The US index continues to march higher as big tech contiues to lead the way. With a break above resistance on 4/28, the next stop for SPY may be 422 if the Friday breakout is confirmed. The FOMC notes on Wednesday will certainly create a big move in the index in one direction or another.
SPY daily chart, via Finviz April 30 Russell 2000: The broader market index continues to be a laggard and is once again trading below the long-term support line going back to 2009. A move down near 163 may create a buying opportunity in IWM. Next level of support below that is ~155.
IWM daily chart, via Finviz April 30 WTI Crude Oil: Oil traded down near its long-term mean price of ~62/bbl in mid-March and has since recovered. The current trading range is shown in the chart below with a lower bound near 64 and an upper bound near 80. I continue to believe the best way to participate in this sector is by owning the midstream energy companies you will see in my portfolio holdings tables later in this post.
WTI crude oil daily chart, via Finviz April 30 Copper: The primary industrial metal continues to consolidate price following the big rally that begain in July 2022. The chart below shows a wedge pattern forming between the yellow lines. I continue to be long-term bullish here while I do expect the this price consolidation to continue this year. My long-term bullishness is reflected in my materials mining stock holdings.
Copper daily chart, via Finviz April 30 Dollar Index: In the weekly price chart below we see that the dollar strength has continued to consolidate folllowing the big bull run that began January 2021. Despite so much talk of ‘de-dollarization’ lately, I do not see the greenback falling off a cliff any time soon. I expect the index to stabilize above 95 in the medium-term.
Dollar Index weekly chart, via Finviz April 30 US Treasuries: In the chart below, we see (roughly) the inverse of the 10-year yield on US treasuries. I think yields have likely peaked for this cycle as the FOMC nears the end of it’s rate hiking cycle. Both IEF and TLT are nearing interesting potential break-out levels. I may look to add to my TLT position on a breakdown in longer-term interest rates.
IEF daily chart, via Finviz April 30 Gold: Still one of the best performing assets of 2023, gold is now consolidating price after once again approaching the all-time high around $2080/oz. A pull-back to the range of 1850-1925 may present an opportunity to re-open my GLD trading position. My own gold holding are primarily in physical form.
Gold daily chart, via Finviz April 30 Silver: This industrial and precious metal continues to be one of the most under-valued of all the commodities as it continues to trade substantially below its all-time high of ~50 in 2011. In the short-term, silver looks to be consolidating back to the low- to mid-20’s while over the course of this decade it is reasonable to expect the price of this metal to make a new all-time high. My own silver holding are primarily in physical form.
Silver daily chart, via Finviz April 30 Bitcoin: The crypto-currency has been on a tear since the start of 2023 as it continues to test an important resistance level near 30,700. I remain bullish Bitcoin for the long term (2-4+ years), but I am waiting for a much better entry in the short-term. I am considering using the BITO security to trade this asset when the time comes due to all the uncertainty around the SEC’s view of the crypto exchanges.
MARKET OUTLOOK & MY PORTFOLIO
Reiterating the Foreword text of this article:
As the mega-cap stocks continue to lead the major US stock indexes higher, my preference is to not chase this equity rally but rather to exercise patience while remaining defensibly positioned. Without knowing where or when the top of this rally will occur, I expect significant equity downside over the coming quarters.
Trying to nail down a precise recession or market downturn timeline is very difficult, so rather than trying to forecast precise timing, my primary focus is risk management with a sensible asset allocation for the current market environment.
When a market bottom is finally upon us, the opportunities for growth will be immense and my portfolio is built to take full advantage of such opportunities when the time arises. In the meantime, preservation of capital is key.
Let’s review my latest market outlook and portfolio holdings to get some idea as to how I am prepared for whatever may come.
Twice-a-month I revise and publish my comprehensive market outlook along with the details of my portfolio (see table of contents above).
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