Earnings season is underway, and market leadership has passed once again, for now, to the big-cap growth stalwarts. We’ll be listening to earnings calls across many sectors and industries to gain some intelligence about how managements are looking at the future — at virus resurgence and the policy response; at rising inflation and input costs; at the future trajectory of interest rates and the cost of capital; at supply chain recovery; and at a host of other macro imponderables that the market is facing down as it continues its rally. As Canaccord’s Tony Dwyer observed recently:
The record highs make the bull case sound right, while the weakness and lack of participation under the surface causes the bear case to sound right… The major market indices have become driven by a narrow leadership that is considered defensive as the economic recovery has become a bit less clear with a pending transition of monetary policy, move past peak growth, uncertainty over further fiscal stimulus, and the ramping Delta variant.
The recent events in China that we discussed above lead us to be more convinced than ever that while there may be tactical opportunities outside the U.S. in particular companies, countries, or sectors, in the bigger picture, U.S. markets will continue to be the global leaders, and will be buoyed by foreign investors putting their money where the growth is — where growth and entrepreneurial ambitions are not suppressed or criminalized, and where property rights remain secured by the rule of law.
Materials, Precious Metals, and Inflation
In the U.S., we believe that inflation will reach 3.5–5% levels and remain there, potentially for years. In the longer term, this will be positive for some materials, particularly tech-related materials such as copper and lithium, which in a few years could be facing supply squeezes as a result of inadequate investment in new supply. It will also be positive for precious metals in the long term, although some of precious metals’ utility will be challenged as more investors have recourse to cryptos.
But Growth Will Be King
That inflationary environment will also cause investors to have recourse to stocks — especially to U.S. big-cap growth stocks. This is where we see market leadership likely to remain for the next few months.
Thanks for listening; we welcome your calls and questions.
