Market Musings 11/07/21: Are we heading towards a summer correction?

11th Jul '21 by Edmund Shing

10 comments 2749 reads

Market Musings 11/07/21: Are we heading towards a summer correction?

Summary:

Podcast: Why invest in Real Estate today?
The surprising fall in bond yields
Growth retakes the lead in equities: Tech, Health care
European mid-caps still lead

Podcast: Why invest in Real Estate today?

How robust are prospects for the residential and logistics real estate segments today?
Is the "death of the office" exaggerated, despite the rise of remote work?
Which segments of the commercial real estate market do you prefer today?
How can investors gain exposure to this asset class within a diversified portfolio?

Why Invest in Real Estate Today?

The surprising fall in bond yields

Economists have been chattering about the resurgence in inflation, particularly in the US, over the last couple of months. US headline inflation hit 5% in May, driven by a number of key components such as petrol prices, the cost of used cars and the cost of renting cars.

In the months to come, US inflation will be kept high by a number of other factors, including the cost of renting combined with rising house prices. So why have US 10-year bond yields (TNX), i.e. long-term interest rates, fallen to 1.3% lately? Normally with strong economic growth and rising inflation, bond yields should rise to reflect this economic strength.

US 10-Year Bond Yield Peaked in April

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Source: TradingView.com

This is puzzling, but deserves close attention. The US central bank, the Federal Reserve, have persistently repeated their view that this surge in US inflation is ‘transitory’, and would not last. Does the bond market believe this view, after all?

Commodity prices have started to cool down of late, which could lend some credence to this “transitory” narrative. Lumber prices, a key material in house construction stateside, has more than halved from its peak over the last month of so.

Lumber prices ease back after a surge

Source: TradingView.com

It is also true that certain one-off effects, like the blockage of freight shipping in the Suez Canal due to the Ever Given grounding, are contributing in the short term to a lack of goods reaching Europe and the US from Asia and are thus pushing up inflation for now. But these effects will surely wear off soon enough.

But perhaps the bigger story is…

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Newbie1234

19th Jul '21

Hey Edmund. Thanks for this . What are your thoughts about commodity players, like Sylvania Platinum (LON:SLP) ? I know you were a big fan but the share price has halved in the last 10 weeks or so to being sub 100p today.

Keen to know where you stand on the above, gold, etc.

Many thanks!

Rusty2

Hi Edmund,

It does look like it. Instead of freedom day maybe it should be renamed isolation day, even the prime minister is not immune. With so many staff get alerts to isolate this could well have severe implications on our economy, not just supplies but businesses closing down.

Sylvania Platinum (LON:SLP) shares are well down again but still not down half. It's to do with the situation in South Africa and Rhodium prices.

JonnieRed

Having a *very scary* day today with falls across almost everything. Biggest faller being Carclo, currently down 14%, making my 8% Sylvania Platinum fall look quite ordinary!

rosco551

Great content as always Edmund, and couldn’t have been more timely! I just wish that I had followed your advice and trimmed more aggressively.

It will be interesting to see if this is minor summertime hiccup or something more prolonged……. a number of commodities stocks that I own have been hardest hit. Sylvania, Tharisa, Atalaya, CAML and maybe more importantly BERI have breached their 30 wma significantly at this point.

Stan Weinstein would be urging a sell based on his stage analysis at this point. Has the commodities supercycle run out of steam already? Expecting solid results and cash generation in the upcoming months from these companies

The Phoenix

Looks like your summer correction has arrived Edmund look forward to your next ramble on how you intend to play things going forward and your current buy/sell and hold views on the various asset classes.

The Boon Fund

Some crazy commodities valuations at the close of play today... Rio Tinto (LON:RIO) trading at 5755p, only 5.4x PE for FY Dec21. And we're already more than halfway through the year, Q1 and Q2 numbers all but announced, and these are the latest revised broker forecasts!

Have also just picked up some National Express (LON:NEX) today. Think its been unfairly lumped into the "travel" sector, when really vast majority of the revenue is committed city transport contracts, school bus routes, and corporate shuttles. International travel might still be buggered but inter-regional transformation within a country should still be strong, with little chance of UK and USA governments going back to movement restriction lockdowns. Super bargain given its dominant position, and ability to pick up more contracts next year or two from failed, smaller companies that don't survive.

Philip999

20th Jul '21

Careful of the rising dollar when buying commodity related stocks

Johnsy

22nd Jul '21

Coronavirus delta variant is on the rampage now in the US. My prediction is that a month from now it will be major news there, especially as more under 40s are becoming sick. A summer correction is definitely on the cards, I reckon.

23rd Jul '21

Another thing that might cause a correction is if Joe Biden retires or quits for medical reasons and Kamala Harris becomes President.

Biden seems to be having increasing difficulty organising his thoughts...

https://www.msn.com/en-us/mone...

Market Musings 11/07/21: Are we heading towards a summer correction?