Stocks firm, oil runs into technical problems

Morning Note

European stocks moved higher in early trade Tuesday after a sizeable down day in the previous session and a rather limp handover from Asia. The FTSE 100 recaptured 7,100, rising 0.5%, after slipping below this level yesterday, having closed down 0.9%. European indices continue to trip along recent ranges having set post-pandemic highs earlier this month as the market looks for more direction re inflation and bond yields. Everyone seems happy to buy the line that inflation will be transitory: the super-hot peaks we are getting right now will be, we knew that as base effects and pent-up demand played out; the question is what sort of new inflation regime persists beyond this summer. Once the inflation genie is out the bottle it is hard to put back in easily.

 

US markets are grinding higher along the path of least resistance but on lower vols and declining breadth. As bond yields remain in check and inflation expectations cool, big tech and other bond proxies are providing the heavy lifting for the indices. The S&P 500 inched to a new all-time high with just healthcare and utilities up and twice as many advancers as decliners. Energy was smoked, registering a decline of 3%, with Valero, Halliburton, Phillips 66, Occidental and Marathon all down 5%. Cruise operator stocks sank 6-7% as Carnival announced an additional stock sale of $500m, whilst Disney delayed a planned test voyage. Growth is beating value right now as the reflation trade unwinds: the Nasdaq rallied 1%, whilst the Dow fell 151pts as the likes of Chevron and Boeing pulled back. US 10yr yields are back under 1.5%, and this morning US stock futures are flat. After a pause, AMC rallied more than 7%. SoFi (Nasdaq: SOFI) is the most talked about stocks on Wallstreetbets, with WKHS, WISH, CLOV, BB, SPCE and GME also still garnering some of the most mentions. 

 

Among the big tech leaders making gains was Facebook, which rallied 4% to take its market capitalisation above $1tn for the first time as it saw off a monopoly legal threat. A judge rejected two antitrust lawsuits brought by the Federal Trade Commission and a coalition of 46 states. The news removed a significant headwind for the stock, though the FTC has a month to refile its complaint. It seems that the judge’s rejection of the case was based on the lack of evidence, or the way it was presented, which could be remedied with a new lawsuit.  

 

Elsewhere, in FX the dollar is mildly bid with GBPUSD testing the Jun 22th low around 1.3860 and EURUSD creeping back to 1.1910. Chart pattern looks a bit bearish and flaggy.

 

EURUSD price action chart.

Crude oil turned lower through the day after touching its best levels in almost three years. So far this market has been a buy-the-dip affair, and market fundamentals seem solid as supply remains tight, but we just need to be mindful from a technical perspective. Yesterday’s outside day bearish engulfing candle is one red flag, the bearish MACD crossover on the daily chart is another. Not necessarily the top but would call for a potential near-term pullback such as a ~10% correction as seen in Mar/Apr this year. Anyway, market fundamentals remain firm and OPEC+ has scope to increase in August – it would be about 1.5m bpd short of demand without any additional output from OPEC or Iranian oil coming back online.

Oil price movement chart.

Bitcoin – still holding under the 200-day SMA but the selling may be done now as bears tire and weak hands are out; there is a potential rip higher incoming.

Bitcoin price action chart.

Thematic investing: Tech & and the Fourth Industrial Revolution

Investments

New technology impacts our lives daily, but what about investing. The fourth revolution is coming and may present some of the best investment opportunities for you. 

Thematic investing & the Fourth Industrial Revolution 

What is the Fourth Industrial Revolution? 

You might be asking yourself “why should I invest my money in this sector?”. Thematic investing is, like the name suggests, picking stocks and companies to invest in based around a particular theme. In this case, we’re talking about the Fourth Industrial Revolution (4IR). 

This is all about disruptive technologies; technologies that change the way we live and the way we work. That includes things like: 

  • Artificial Intelligence (AI)
  • The Internet of Things and great device connectivity (IoT) 
  • E-commerce 
  • Blockchain 
  • Social Media 
  • Healthcare & genomics 
  • Electric vehicles (EVS) 
  • Cloud computing 

How widespread will the 4IR be? 

Unlike other industrial revolutions which tended to be local (think the UK’s massive steam-powered mills and factories in the North of England), the Fourth Industrial Revolution is well and truly global. Today’s advancements in interconnected technologies mean communicating and working with partners around the world has never been easier. 

4IR looks like it could be one of the best investment opportunities because it is likely to touch all areas of the economy. When you’re using your smartphone to shop online, facetime a friend or relative, or use any app, you’re already feeling its effects. 

The Covid-19 pandemic has blended with FIR to push remote working platforms like Microsoft Teams and Slack to the forefront of people’s working days. Tesla is pioneering electric vehicles, not just in personal transport, but also in developing electric trucks for transport & logistics purposes. 

AI, big data and increasingly powerful computing power has also seen a huge rise in data sciences and analytics in any number of fields, for good or for ill. Burnley FC might be using AI to help scout the next generation of football players for its academy, while others have used it to sway elections – who else remembers the Cambridge Analytica scandal? 

Advances in robotics is making manufacturing faster, as well as changing up warehousing operations. Ocado, the UK online grocery retailer, has pumped substantial money into proprietary warehousing robotics technology for instance. 

The World Economic Forum Founder and Executive Chairman Professor Klaus Schwab, a former engineer, believes this is only just the beginning.  

In his book which gave FIR its name, Professor Schwab said: “Prior industrial revolutions liberated humankind from animal power and made mass production possible and brought digital capabilities to billions. This fourth industrial revolution is fundamentally different – characterised by a range of new technologies that are combining the physical, digital and biological worlds. It is impacting all disciplines, economies and industries, and ultimately may even challenge ideas about what it means to be human,”  

We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before. 

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as AI, robotics, the Internet of Things, autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing. 

So, what does this mean for people exploring thematic investing? Are there any stocks to watch out for? How can you get involved in this worldwide event from an investors’ standpoint? 

Finding the best investment opportunities in the Fourth Industrial Revolution 

Thematic investing is summed up by Exchange Traded Funds (ETFs). These are funds that track markets and indices based around a theme, grouping together stocks based on that theme. Investing in such a fund gives you exposure to a number of stocks at one time, without relying too much on any individual stock. 

In this space, there are many ETFs available. The ARK Innovation ETFs from stellar investor Cathie Wood’s ARK are a good case study here. There are five current ARK exchange traded funds: 

  • ARKQ – ARK Autonomous Technology & Robotics ETF  
  • ARKF – ARK Fintech Innovation ETF  
  • ARKK – ARK Innovation ETF 
  • ARKW – ARK Next Generation Internet ETF  
  • ARKG – ARK Genomic Revolution ETF 

There are other, new funds that are offering investors the chance to invest in a cluster of 4IR stocks. The VanEck Social Sentiment ETF, which is listed as BUZZ on the New York Stock Exchange, lists many tech and social media companies pioneering Fourth Industrial Revolution industries. 

What’s interesting is the BUZZ ETF also uses 4IR tech to select its constituents. An AI algorithm scours the internet to find stocks that are causing the most positive buzz on social networking and news websites. Those getting praise from investors are added – provided they have a minimum market cap of $5bn. 

You may also wish to invest in a single company, rather than a stock. If you were looking at 4IR thematic investing, then you’d be looking at companies involved in the sectors mentioned earlier in this article. So, for EVs, you might want to consider Tesla, e-commerce you might pick Amazon, or big data you might invest in Palantir. 

A diversified portfolio would be a good approach here. Diversification means your portfolio would not lean too heavily on a single stock. With the variety of sectors falling under the 4IR umbrella, there are still ways to invest thematically without overexposing yourself in one particular direction. A mixture of ETFs and stock picks may present the best investment opportunities for you, should you decide to pursue such a strategy.  

Of course, any investment strategy, requires careful analysis and research. It also comes with inherent risk. The value of your investment can go up or down. You could come away with less money than you deposited. Always do your due diligence prior to committing any capital and monitor your open positions carefully. 

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