Gravitas: This August, Last August

September 01, 2023 | Michael Newton


The Newton Group Insights

The S&P 500 index is currently near 4,400 and could triple to 14,000 by 2034. The stock market has demonstrated a remarkable surge of close to 20% in the ongoing year. This upward momentum might be a part of a broader secular bull market cycle that could propel the S&P 500 to reach new heights. This assessment comes from Robert Sluymer, a technical strategist at RBC, who recently shared in a note that an upward trend, originating in 2016, could be gaining traction within the stock market. Sluymer emphasized, "The long-term secular trend for US equity markets remains positive with an underlying 16-to-18-year cycle supportive of further upside into the mid 2030s, potentially to S&P 14,000." If his projection materializes, with the S&P 500 reaching as high as 14,000 points by 2034, it could imply a potential increase of 209% from the present levels. This translates to an average annualized growth of slightly below 10% over the course of the next 11 years. Sluymer pointed out that these generational cycles have traversed phases of expansion and contraction, each spanning nearly two decades.August is in the books! The S&P 500 snapped a five-month winning streak, falling -1.77%. On a brighter note, it closed +4% off the month’s lows. The price action in 2023 continues to be the exact opposite of 2022. One of the key differences has been that breakouts and retests have been successful. What was once resistance acted as major support this past month. August 2022 began with a nasty failed breakout, and the index closed at the month’s lows, down -4.24%. On the other hand, this August started with a mild dip that got bought. While price behavior continues to improve, we still must be on our toes, as September has historically been the worst month for the S&P 500. I suspect that this September will disappoint the bears, and we should see a continuation of the market rally. The mood in the markets has changed and many investors have been slow to wake up to this.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(~) Bank of Montreal (BMO-T) reported a headline miss relative to consensus expectations driven by one-time charges ( severance and legal provisions). Provisions for credit losses also came in above expectations and is likely biased higher in the year ahead in our view. To top things off, U.S. and Canadian banking both posted softer numbers as well due to a combination of compressing NIMs (net interest margins) and declining loan growth. On the positive side, the capital ratio improved to 12.3%, up 10 bps sequentially. Overall, the negatives outweigh the positives and therefore we believe the shares will likely trade sideways for some time. Shares yield 5.03%. Owned in Cash Flow Portfolio

(-) Cool Company (CLCO-US) engages in the business of liquefied natural gas carriers; and the operation of third-party fleets under management agreements. Q2 net income of $44.6 million in Q2, compared to $70.1 million for Q1. Revenue of $90.32M (+71.7% Y/Y) beats by $1M. Owned in Opportunity Portfolio.

(+) Sunrun (RUN-US) Shares of the residential solar energy company jumped after Citi upgraded the stock to buy from neutral. The Wall Street firm said Sunrun is “not getting due credit” for numerous catalysts set to drive the stock higher, including falling component costs and investment tax credit benefits. Owned in Core ESG+ Portfolio.

(+) Shopify Inc. (SHOP-T) had a good week on the announcement of the long rumored ‘Buy with Prime’ deal with Amazon. Deal terms were better than some investors had expected as SHOP will process the payments (and collect the associated fees) on all purchases made through ‘Buy with Prime’. As a reminder, Shop Pay is a big part of SHOP’s Merchant solutions business, and 58% of GMV (gross merchandise volume) on the platform was driven by Shop Pay in the last quarter. The partnership with Amazon also solidifies SHOP’s role as the “glue” that holds merchant eStores together, in our view, and we expect the company to continue to use its position to drive further monetization opportunities through other value-added features and third-party collaborations. Valuation remains in-line with pre-pandemic multiples, which we think is justified given SHOP’s strong value proposition and strategic position. Owned in Core Portfolio.

(+) Vale (VALE-US) was upgraded to Overweight by J.P. Morgan. They said the mining and metals company is undervalued compared with its peers. Current iron ore prices are being supported by improved sentiment on China reopening and robust steel output. Current valuation looks discounted. After a very challenging start to the year, marked by low volumes, operating challenges and high costs, the coming quarters should look better. Owned in Opportunity Portfolio.

(+) Wynn (WYNN-US) Macau casino revenue hits post-pandemic high despite economic headwinds in China. Gross gaming revenue in the gambling region rose 686% year-over-year in August against a soft comparable to last year when travel restrictions were in place due to COVID outbreaks in some regions. The return of live performances and industry conferences has boosted traffic in Macau over the last few months and the Macau hotel occupancy rate continues to improve. Wynn derives 20% of its revenue from the region. Owned in Opportunity Portfolio

Weekend Reading

The Chip Titan Whose Life’s Work Is at the Center of a Tech Cold War At 92, Morris Chang, the founder of Taiwan Semiconductor Manufacturing Company, can no longer stay in the shadows. NYT

Forget the iPhone: BlackBerry is still the one to beat How little do we know about the future? A great way to figure that out is to look to our past, to see what we previously thought about what the future will hold. RITHOLTZ

My Rule for Avoiding Lifestyle Creep: Don’t Live Beyond Your Assets By marrying two metrics—our liquid net worth and our income—we can strike a better balance around the type of lifestyle that’s reasonable to live, as opposed to just looking at one number or the other. While income is the number most people use to determine what they can spend, it only tells half the story. MONEY WITH KATIE

How We Know What Isn’t So by Thomas Gilovich The author looks at why we form questionable or inaccurate beliefs and why we hold onto them. Through research and examples, he identifies cognitive biases we all share that distort our beliefs and decisions. NOVEL INVESTOR

Kingdom of Golf Carts In the Atlanta suburb of Peachtree City, teens and older people alike rely on little electric vehicles to get around. Is this a potential model for a more sustainable suburbia? BLOOMBERG

The Storied History of the Hollywood Sign MOSS AND FOG

Amazon has Hollywood’s worst shows but its best business model It aims to make video pay by applying the techniques of e-commerce. THE ECONOMIST


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