The S&P 500 Index was less than 5% away from all-time highs as of the end of July. As Q2 earnings are unveiled, stock prices are jumping or falling off a cliff. At these levels, companies’ stock is priced to perfection. And much of what investors want to hear is a rosy outlook for future quarters. If you only give them numbers equal to expectations and don’t increase revenue guidance, boom! stock price falls.
It feels like a good time for the market to take a break, consolidate, and maybe correct a 5-10% lower. Give the market time to absorb the run-up YTD and get ready for the next attempt at new all-time highs.
If you are dollar cost averaging into your 401k and/or investment account, no need to worry or watch the gyrations of the market. If price goes down, you get more for your money. If price goes up, your portfolio is worth more. Win-Win. Just remember that 9-10% of your investment is going to fossil fuel companies who are motivated to sell more fossil fuels. Look for low carbon emissions or fossil fuel free funds for your long-term investment portfolio.
Portfolio Update - July 2023
For the second month in a row, the Russell 2000 outpaced both the S&P 500 and NASDAQ indexes, 6.1% versus 3.1% and 4.0% respectively. It is up 14.3% in June and July and 14.0% YTD. Through the first seven months of the year, the S&P 500 is up 19.5% and is only 4.8% away from all-time highs (4,818) which was reached on January 4, 2022. Although the NASDAQ has gained more YTD (+37.1%) it remains about 10.5% below all-time highs as it fell harder in 2022 than the S&P.
The broadening in the participation in the stock market is good news for this bullish rally. However, the S&P is approaching a zone of resistance in the 4,600 area. Back in March of 2022, there was a move up from the strong downward trend in January and February of last year. The March high was 4,627 and could very well be a place where the market takes a rest as mentioned in the opening paragraph.
Climate Tech portfolios
The best gain in the table this month is the equal-weight Clean Energy SPAC portfolio which has about 40 companies in it. There have been many small-cap stocks that have run hard in July and a few of these clean energy names have participated. Below is a list of the stocks from the equal weight that appreciated 40% or more in the month of July.
Combine a piece of good news with the fact that several of these stocks have large short positions and it becomes an equation for a squeeze of price to the upside. For instance, Nikola announced an order of 50 hydrogen trucks mid-month and the stock rallied 62% on the day. Short interest has been over 20% of the outstanding stock. High short interest can fuel moves in price higher as the shorts need to cover by buying the stock.
On the Follow platform, I write another monthly newsletter that usually digs in a little deeper into specific areas of the Green Edge framework which includes the following three main categories ==» Lead by Example, Deployment at Scale, and Innovators.
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Recently, I dug into the Solar Energy Industry. Below is a chart of recent Q2 earnings announcements of some of the major solar energy companies.
It’s been a mixed bag of results, but there are challenges to rooftop solar projects such as higher interest rates which make it more expensive to purchase solar for your rooftop. But the incentives available from the U.S. government is giving a boost to the large utility scale solar farms.
Cryptocurrency
Cryptocurrency blue chips, Bitcoin and Ethereum, were both down about -4% for July while the whole crypto portfolio was up +1.6%. That doesn’t usually happen, but there was a catalyst that drove a rally in many of the next-tier tokens.
Ripple’s XRP token surged in mid-July after a judge in the Southern District of New York ruled that it’s “not necessarily a security on its face.” The price of XRP moved higher by 71% to 80 cents a coin. The news gave hope to crypto investors that other altcoins also may not be considered securities after all.
Other coins that rallied about 20% on the news including Polygon, Litecoin, Solana, and Cardano. Most drifted lower in the second half of the month, but generally finished higher for July.
For our tracked Portfolios, the more aggressive beat the mix and the traditional in the month and continue to lead in YTD percentages. As we have mostly been in the risk-on environment for 2023, it is understandable that the more aggressive portfolios would lead. It will be interesting to see how the last five months of the year will go and whether the aggressive stance will win out or peter out.
Let me know if you have any questions or any topics you would like me to cover.
Efficiently Yours,
D.T.