Playing to your strengths
Around 180 S&P 500 companies are set to report earnings this week with tariff impact and guidance a key focus. To date, the March quarter has gone well with consensus earnings forecasts lifting to 10.9%. However, the upcoming June quarter will be more important as investors assess the impact of trade disruption. Amazon, Apple, Meta Platforms and Microsoft are all set to report later this week. What CEOs say about guidance and how they are planning to navigate the ongoing trade disruption will be influential.
For now, the S&P500 remains rangebound between 5100 and 5500 with the SPX slightly breaching above resistance with a Monday close at 5,528. Resistance should prove heavy above this level, given ongoing uncertainty. Support is well-defined between 5100/5200. Whilst further catalysts are awaited, I anticipate the SPX to remain within the range.
Meanwhile, the US stock market selloff likely has one more leg lower over the coming months, with international equities likely to continue faring better in a relative sense. Valuations are much lower and closer to historic norms, whereas the PE on the S&P500 is still not far from historic peak levels. Bank of America Chief Investment strategist Michael Hartnett said that “the days of high US valuations are over.”
More than meets the eye
A lot seems to be going on the oil markets. Prima facie on the surface, weaker prices reflect slowing growth concerns – as evidenced today by the US Commerce Depts. preliminary GDP report which showed contracting growth in the March quarter for the first time in three years. But there could be more to weaker oil prices than meets the eye.
As mentioned in previous commentary, Saudi Arabia has flooded the market in the past to drive down prices and boost its market share. WTI prices below $60 effectively kills off exploration and capital investment, whilst shuttering high-cost marginal producers. In the last cycle, after regaining market share, OPEC+ then tightened supply and drove up prices.
The break below the $60 support level likely signals further oil price weakness over the near term. However, there are three reasons not to be bearish on energy and energy stocks. Firstly, OPEC and Saudi Arabia know that prices below $60 effectively tightens their control over the market and gives low-cost producers greater share.
Secondly, the largest oil producer is the US, but given higher costs of production, its share of global production is likely to decline. Many top US energy company CEOs are already lamenting the state of domestic industry and that ‘drill baby drill’, is anything but happening. At some point, when OPEC has more market share – and perhaps more pertinently, when US share of global production has declined, the cartel will tighten supply and drive-up prices. We have seen this in previous cycles.
Thirdly, and this is the most important point, the lower US dollar makes oil cheaper for RoW. Lower oil prices and a weaker US dollar provides a big boost to the global economy – and possibly a significant offset to the tariffs.
Finally, large cap global energy stocks have declined but now reflect very low valuations. When the cycle turns and supply tightens, oil could quickly pivot to the upside similar to past occurrences.
White gold
Contrarian economist Marc Faber made some interesting comments in a report this week about commodities and precious metals. On gold, Marc Faber said “I need to make the following observations. None of my young friends own much gold (it is simply too boring compared to crypto currencies and Nvidia). Among my older friends, most of them took profits because they thought that gold was overbought. The question I would ask myself is this: with US economic policies under Mr Trump, can gold ever become overbought?”
Mr Faber makes a fair point about gold and the Trump Administration. The technical and political damage to the US dollar is likely to be ongoing. Meanwhile, the asset class remains under-owned by investors. The same is true for gold and precious metal miners, particularly in stock markets where the sector is under-represented (Australia, Canada, and the US are notable exceptions). Still, the key point is that most investors have little or no exposure, which points to the bull market having much further to run, once gold resets and establishes a support base following the incumbent consolidation phase.
We are likely to continue to see gold consolidate with recent long positions washed out as overbought conditions correct. This consolidation might be ongoing for a few more months yet, but I don’t envision gold and precious miners being as volatile if gold does retest support at lower levels towards $3,200 and $3,000oz.
Meanwhile, whilst consolidation in spot gold could persist for several weeks and perhaps months, the other precious metals seem to be stirring. I remain bullish on silver and platinum. In terms of the fundamental backdrop for silver (which did not track gold higher during the April surge), the outlook remains robust.
A recent report from BMO Commodities research highlighted that “despite struggling to capture the imagination of the investor space in recent years, solar energy continues to be a major bright spot of the global industrial economy, with market growth seemingly limited only by how quickly projects can be physically connected to power grids. We expect this trend to persist in a more trade-protectionist world, with policymakers enticed by the prospect of cheap clean energy likely turning a blind eye to Chinese dumping. Our analysis suggests that this will keep silver in deficit for the foreseeable future, with the market balanced by flows from the investor space to the industrial space. Recent positioning data suggests a new psychological floor around the $30/oz mark, which we believe will persist while the market remains in deficit”.
I think it is only a matter of time before silver catches up to gold, given BMO’s argument of tightening supply and rising investor demand. I concur also that $30 is now a key support, with the technical setup skewing bullish. Silver has materially underperformed gold this year, but that could soon change given growing industrial demand.
Moving onto “white gold”, which is an alloy made with a lot of platinum, Marc Faber also sees opportunity in the metal and in the platinum miners. He noted this week “A special situation has arisen in the platinum market, with the platinum-to-gold ratio reaching a 122-year low (see below). I have decided to buy some platinum every month for the remainder of 2025. A strong rebound in platinum prices would be extremely positive for Sibanye Stillwater (SBSW).” I concur with the 79-year-old contrarian and market veteran and believe a powerful breakout and new bull market in platinum and depressed platinum miners will emerge this year.
Source: Marc Faber, Doom, Boom & Gloom/ Peter Rehmer
Turning to Australia, there were impressive gains for tech stocks which helped the benchmark ASX200 lodge a sixth straight gain on Thursday to a 2-month high, rising +0.24% to 8145. While the pace of gains slowed from recent sessions, market breadth remained robust. Despite global growth jitters, optimism around rate cuts, and election uncertainty the ASX200 has recovered a significant chunk of early April’s losses. Our bull market outlook for Australian equities remains intact after fervently being tested last month.
Election day tomorrow is shaping up to be a defining event. Various polls all point to a high likelihood of a hung parliament skewing to a Labour win. But polls have been wrong before – as we saw during the US election last year. The market seems to be taking the election outcome in stride, but Monday’s reaction will be interesting, nevertheless. Regardless of tomorrow night’s result, a rate cut is all but cemented for the May RBA meeting which is on May 20th.
Carpe Diem
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