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Elkstone Private Monthly Bulletin

Elkstone Private – Monthly Update July 2018

Stephen’s Snapshot
The Market – Latest Dynamics

Global stock markets proved mixed through June on the back of ongoing concerns surrounding trade tensions and elevated political and economic uncertainty. Over the period, the European Central Bank (ECB) announced that it planned to end its stimulus programs, and increase interest rates over the course of the next 12-months. This, combined with Brexit uncertainty brought the vulnerability of the European Union back into focus for investors. 

Across the pond, US equity markets continued to shrug off concerns over the tariffs on steel and aluminium, whilst the broader technology sector, as measured by the Nasdaq continued to trade near historic highs. Q1 corporate earnings growth far exceeded market expectations with unemployment also falling to levels not seen since the latter part of 2000. As we reach the half year mark, broader developed market long term trends remain intact but heightened volatility is becoming more pronounced.

Stephen O’Sullivan is a Senior Investment Manager at Elkstone Private.

 

Chart Source: Bloomberg

 

Market Performance – EUR (€) Denominated Returns

Name Year to Date
(YTD)
Trailing 30D
(T1M)
June Return
EUR (€) EUR (€) EUR (€)
db x-trackers MSCI AC World ETF +3.42% (0.29%) (0.32%)
U.S. – S&P 500 +8.40% +0.65% +0.43%
Europe – Eurostoxx 600 (1.08%) (1.07%) (0.82%)
Gold (2.95%) (4.47%) (3.46%)
WTI Crude Oil +16.24% +4.20% +10.55%
Bloomberg – 17th July 2018

 

U.S. and European Markets

Equity markets look to evaluate and anticipate corporate profits which leads to the major focus on Earnings Per Share (EPS) forecasts.

Looking at the US market (below)-recent EPS momentum measured by the past 3 months change in year-ahead forecasts is still being led by Cyclical sectors (Energy, IT, Materials, Industrials) with the Defensive areas (Telecoms, Consumer Staples, Utilities) still lagging.

A similar picture emerges when looking at absolute EPS growth forecasts for this year and next year with the largest expectations in the more economically sensitive areas of the market.

 

Bloomberg Estimate – S&P 500
Name BEst EPS
(% Change)
BEst EPS
(YoY Growth)
BEst EPS
(YoY Growth)
3M CY CY+1
US – S&P 500 +0.73% +19.48% +10.15%
Energy (31) +6.17% +111.84% +23.55%
Information Technology (70) +1.99% +19.80% +9.97%
Materials (24) +1.33% +27.03% +12.15%
Real Estate (33) +6.00% +4.59% +3.94%
Industrials (70) +0.91% +21.98% +12.66%
Health Care (63) +0.75% +16.87% +10.41%
Consumer Discretionary (81) +0.69% +18.49% +11.11%
Financials (68) +0.56% +29.92% +9.54%
Utilities (29) +0.19% +6.09% +5.84%
Consumer Staples (33) (0.68%) +13.96% +7.49%
Telecommunication Services (3) +0.56% +16.26% +2.22%
Bloomberg – 17th July 2018

 

Broadly the same picture for Europe (below) with Telecoms, Staples and Financials showing poor EPS momentum compared to Energy in particular. Similarly, looking at EPS growth forecasts for next year we find that the more domestic Telecom and Utility sectors again lag.

 

Bloomberg Estimate – Eurostoxx 600
Name BEst EPS
(% Change)
BEst EPS
(YoY Growth)
BEst EPS
(YoY Growth)
3M CY CY+1
EU – Eurostoxx 600 +0.00% +7.96% +9.43%
Energy (22) +13.16% +17.23% +4.57%
Utilities (27) +0.62% +3.66% +6.64%
Materials (57) +0.50% +11.19% +8.36%
Real Estate (27) +0.45% +9.11% +6.45%
Information Technology (38) +0.05% +12.54% +12.31%
Health Care (50) (0.07%) +7.94% +11.19%
Industrials (120) (0.14%) +9.88% +10.24%
Consumer Discretionary (84) (0.32%) +6.29% +9.57%
Consumer Staples (43) (0.47%) +6.08% +8.79%
Financials (111) (0.97%) +6.51% +8.87%
Telecommunication Services (20) (2.84%) (3.92%) +7.07%
Bloomberg – 17th July 2018

 

Within sectors, we continue to favour Technology, Consumer Discretionary and selected areas within Healthcare. We remain more cautious on traditional Defensive areas and Financials.

We have prospered by favouring these stronger sectors and within them looking within the more attractive sub-sectors for individual names.

 

Notable movers – Trailing 30 Days – EUR (€) Denominated Returns

Positive Performers
Positive Performers Trailing 30D
(T1M)
EUR (€)
Biogen +15.89%
William Demant +14.12%
Softbank Group (NKY) +12.57%
Trupanion* +11.23%
Monster Beverages +9.71%
Bloomberg – 17th July 2018
Negative Performers
Negative Performers Trailing 30D
(T1M)
EUR (€)
Glencore PLC (19.16%)
Carrefour (13.74%)
Starbucks (10.59%)
Estee Lauder* (10.40%)
Tesla (10.28%)
Bloomberg – 17th July 2018

 

Who said what

# 1 U.S. Economy: “. stronger than a garlic milkshake…and the secular bull market should continue for several years.” – Jeffrey Saut, Raymond James.

#2 Bitcoin: “Price changes in bitcoin and other cryptocurrencies are a better indicator of volatility in the market — as good as the VIX.” – Brian Stutland, Equity Armor Investments

#3 EU Jitters: “The more recent bout of political turmoil spanning across a number of member countries coupled with a clear loss of economic momentum in the region has investors questioning the sustainability of the recovery and the future of the bloc.” – Lindsey Piegza, Chief Economist Stifel Nicolaus

#4 Brexit: “The economic case for remaining a member of the EU is strong, but it will take time for it to sink in. During that time the EU needs to transform itself into an association that countries like Britain would want to join, in order to strengthen the political case.”- George Soros, Global Investor

#5 Oil Prices ahead of June OPEC meeting: “A move to put more oil on the market by Saudi Arabia and Russia would be very bearish for prices. The mere contemplation of it has hit oil prices this week.” – John Kilduff, Again Capital LLC

                                                     

Disclaimer
This monthly marketing report should in no way be relied upon or substituted for the exercise of independent judgement. Elkstone has taken all reasonable care in the production of this material, but nothing in this note should constitute investment advice in any shape or form. Nor should it be perceived as giving accounting, tax or legal advice. This report is produced solely for educational purposes only. Individual circumstances differ, and readers should not act upon this content in any way. Readers should consult with their independent and regulated professional advisors before making any financial decisions. Prices can fall as well as rise, and may be subject to sudden and sharp moves. If you invest in the stock or other markets you may not recover the total amount originally invested. Historic performance in no way guarantees or indicates future price performance. Further risks to be aware of include currency and exchange rate fluctuations, which may also adversely impact your holdings. The educational information and opinions presented in this report were obtained or derived from sources that Elkstone deems to be reliable, but Elkstone or its related parties (employees, consultants, management, and directors) makes no representations or warranty, express or implied, as to their accuracy or completeness or correctness. Therefore Elkstone accepts no liability for loss arising from the use of the educational material contained within this newsletter.