Apologize that I have not been that active with my regular postings in the last few days. About 30 global world leaders including the Pope participated in the Biden initiated ‘Climate Summit’ last week. It was a virtual meeting.
As we have discussed before one of Biden’s biggest agenda during his presidency will be to build a case for global energy transformation. The politicians in the summit made big and bold promises about how quickly they will get to ‘carbon neutral’. The Biden plan calls for a ‘100 % clean energy economy’ and ‘net zero emissions no later than 2050’. A really tall task. This is a huge bet to make with the economy (meaning people’s lives). Whatever it is Biden has an aligned congress to fund it and execute it. We’ll see.
Clean energy stocks have really taken off and think dips in those should be long term buys. In these situations, a no-brainer investment will be in oil and oil related stocks. Until the clean energy initiative can produce viable energy alternatives at scale, we will still be using a lot of oil even as it gets more expensive. Supply will be curtailed with the new government initiatives.
Since this movement was highly communicated with the Biden election, the oil and gas stocks are the big movers. The biggest Energy ETF (XLE) is up 61% since Election Day. The biggest clean energy ETF (ICLN) is up only 22% over the same period. Stocks are trading at record highs. With a quarter of S&P 500 companies already reported for Q1, 84% have reported positive surprises, and earnings growth is running +34% on average.
Looks like this will be the trend for the year. However, there could be a rotation between tech stocks to ‘traditional economy’ stocks. As the tech stocks earnings will be reported this week, the argument is will they beat the stellar results of last year? (Facebook, Amazon, Google and Apple). The risk is more for tech stocks to trade lower later this week.
Equities
The markets in general has been very lackluster. The S&P 500 and Nasdaq closed modestly higher while he Dow closed slightly lower. The move up since Sep 24 in the S&P has followed a clear wave pattern. There are chances the S&P could rally strongly in the coming few days. The VIX made a new 14 month closing low at 16.25 on Apr 16. This provides a hint volatility could increase anytime. A very low VIX in normally associated with a move down in stocks.
Bonds
The bonds started a bear market rally on Mar 18 from the lows of 153^07. The question is did we complete the top at 159 the high on Apr 15 or if prices will still have an upward push. The FOMC meeting tomorrow should not create any ripples other than some background noise. A decline below 155^08 should confirm that the anticipated down move could be in play.
Euro
Movements in Euro has been very unpredictable. A much more detailed analysis will follow in the coming days. A correction from 1.2118 is under play now. The decline from Jan 06 high lasted 60 days. The inner wave movements require more analysis.
Gold
Looks like gold has traced out a flat correction at 1798 on Apr 21. The decline so far has been in three waves indicating there could be more upside. A further down move will confirm that gold’s larger decline has resumed. We still believe the risk for gold is more to the downside.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.