With the Trump administration dialing back threats while corporate earnings and “the negotiation of many trade deals” distract the press and fill investors with false hope, we feel that the recent rally has largely played out and sits around levels where the risk/reward has shifted back to the downside.
Trumps policy uncertainty has heavily dented confidence in the US economy and made it impossible for “Main Street” and Wall Street businesses to manage forward plans and supply chains.
Unfortunately we don’t see this improving and see a number of negative near term catalysts
- Government job cuts – there are at least 300,000 job cuts from the DOGE review that haven’t filtered into the US employment data yet. Adding to this is over 200,000 in proposed job cuts announced as part of earnings reports in the private sector
- Potential panic buying – with the halt of Chinese ships to the USA, there is a looming goods shortage with the 30-day lead time to ship from China to the USA quickly eroding as US ports see their lowest volumes since COVID
- Weakening leading Indicators – Conference Board Leading Economic Index (LEI) has dropped 0.7% in March, and -0.2% in February with Aprils numbers likely to be far worse as we have seen the worst consumer confidence numbers since COVID along with falling manufacturing and services PMI (PMI is the purchasing managers index which measures business confidence and spending)
Relief rallies are very common in bear markets and the above example shows a similar pattern to 2022 where a second leg down saw a new low.
We are recommending a return to higher than normal levels of cash or defensive names in portfolios (above 30%)
Holdings we are recommending to trim are:
- Steadfast SDF (take 5% profit) – the company is unlikely to have any updates until next earnings in August
- CSL – CSL is one of the largest holdings in portfolios and taking an 8%-10% profit on the recent buying around $230 is reasonable after only 15 trading days
- GMG & MQG Take 10%-14% profit– While both companies are MPC High Conviction picks, our most recent buying is up 10%-14% in a short period and a banking win is prudent
- Sell International Quality ETF QUAL (7% loss)– This ETF is very heavy in US stocks, particularly MAG7, which have near term risks to the downside
- FANG+ ETF – with the positive earnings results for most of the MAG7 in the rearview mirror, the remaining Mega-Caps, Apple and Amazon are at a high risk of tariff effects and Nvidia a month away, the risk/reward is firmly to the downside for this ETF
Disclaimer: The recommendation given is general advice only. It does not take into account your personal objectives, financial situation, or specific needs. This information should not be your sole resource when making such decisions. We strongly recommend you to seek the advice of financial, taxation, and legal professionals before finalising any investment decisions.
Past performance is not an indicator of future returns