Sprott Physical Uranium Trust (U.UN.TO) & iShares S&P 500 Growth ETF (IVW) vs iShares S&P 500 Value ETF (IVE)
It has been a somewhat choppy month in the equity markets after a very impressive first half of the year. In the past month, major indices have pulled back. The S&P 500 Index lost 2.21% in the last month, while the Dow Jones Industrial Average lost 2.14% and the Nasdaq Composite Index lost 2.22%. The S&P/TSX Composite Index lost 3.25% and the Russell 2000 Index lost 6.48% over the past month.
In the latest Fed minutes, many policyholders still saw significant risks that inflation could remain higher than they expect which could keep rates elevated for longer than expected. As such some investors may have come to the possibility that this economic resilience may extend the Fed’s higher for longer stance on interest rates. Markets may now be waiting for this Friday’s Jackson Hole Symposium where we will hear from Chair Powell and other leaders of other central banks on monetary policy trends in the US and elsewhere. Recent market action and Bond action (US 10 Year bond yields at 15-year highs) may be implying the Fed will remain hawkish for longer as 80% of those surveyed expect the Jackson Hole's speech will reinforce a message of a hawkish hold.
In addition, we are now in the dog days of summer and entering what has historically been the weakest and most volatile time of the year for equity markets (through to mid-October). We also hear that S&P Global has joined Moody’s in downgrading US Banks and offering a gloomy outlook for additional banks which may weigh on the markets during this traditionally volatile period of the year. Canadian banks are set to report their earning results starting today. Many of Canada’s big banks are expected to set aside more funds for bad loans in a tough economy forcing borrowers to rethink their mortgages potentially making it a challenging quarter for the sector.
Other important data releases announced this week so far were US New Home Sales rose 4.4% in July vs expectations for a -1.6% decline, US Manufacturing PMI Data dropped to 47.0%, down from last month’s reading of 49 which was below consensus estimates of 48.9. The Service sector activity was also weaker than expected falling to 51.0% down from last month’s reading of 52.3 missing estimates of 52.1. On a positive note, Canada Retail Sales rose 0.4% in July beating expectations. Other economic data points scheduled for later this week are US Initial Jobless Claims,
US Durable goods orders today, and U of Michigan Sentiment tomorrow. Since the Commodity Asset Class has risen from the seventh spot to the 2nd spot in SIA Asset Class rank list in the past month, in this edition of the Equity Leaders Weekly, we are going to look at Uranium by looking at the Sprott Physical Uranium Trust (U.UN.TO) as well as two competing investing philosophies of Growth and Value by looking at the shares of iShares S&P 500 Growth ETF (IVW) vs the iShares S&P 500 Value ETF (IVE).
Sprott Physical Uranium Trust (U.UN.TO)
It seems like there is a renaissance brewing in the nuclear industry as the price of uranium has doubled over the past 3 years. As such, the sentiment among uranium is one of growing optimism as there is an expectation of a further recovery in uranium prices in 2023. Optimism stems from several developed countries are extending the lifespan of existing nuclear power plants as well as investing in new construction. With the ongoing Energy crisis materializing in some parts of the world as well the world’s growing desire and need for reliable, low carbon power sources, nuclear energy (and subsequently uranium) is gaining popularity once again.Countries that have announced plans to expand their nuclear power programs include Japan, France, South Korea, UK, United States, and Germany. From a supply and demand landscape, demand is expected to increase significantly in the coming years while supply remains tight. Today, supply-demand dynamics show 190 million pounds of uranium is consumed annually while only 130 million pounds are extracted from the ground which is creating a supply deficit. This supply-demand imbalance is creating upward pressure on prices. There are also discussions from the G7 to throw Russia, which is a key producer, out of the nuclear supply chain which can further apply upward pressure on prices.In looking at the attached point and figure chart of Sprott Physical Uranium Trust (U.UN.TO), we see the bottom of the Uranium prices in August of 2021 followed by a very strong move upwards in September of that year. Most recently, in looking at the trend of U.UN.TO, we see a bottom in July of last year followed by a consistent pattern of higher highs and higher lows indicating it has entered accumulation phase. Now, a key inflection point approaches as the chart is now bumping into near term resistance at $19.36 dating back to early 2022. If it manages to break above this upcoming resistance level, next resistance can be found at its all-time high of $20.14. Once this $20.14 level is achieved, we could be looking at new levels not seen in this ETF since its existence. On the downside, support is at its 3-box reversal of $17.88, and below this around $16.52. With an SMAX score of 10, U.UN.TO is showing near-term strength against all the asset classes.
iShares S&P 500 Growth ETF (IVW) vs iShares S&P 500 Value ETF (IVE)
Generally speaking, investors tend to flock towards Value investing when economic conditions are fragile and migrate towards the Growth area during times of economic growth. Looking at these two competing investing styles to see how they have performed specifically since the beginning of 2022 when market volatility increased and the recent pullback in equity markets really started to take hold as the central banks monetary tightening program started to materialize.
As a reminder in analyzing a comparison chart, a rising column of X’s indicates the first symbol, the iShares S&P 500 Growth ETF (IVW), is outperforming the iShares S&P 500 Value ETF (IVE) while a declining column of O’s indicates the iShares S&P 500 Value ETF (IVE) is outperforming iShares S&P 500 Growth ETF (IVW).In the
comparison chart of IVW vs. IVE, we see that for 16 years from 2005 until the end of 2021 there has been some pretty consistent relative outperformance of Growth stocks vs. Value with only brief periods where the Value area outperforms specifically in spring of 2021. Since the beginning of 2022 when the markets started one of the worst first half performances in over 50 years we saw a brief massive rally where Value (IVE) outperformed relative to Growth (IVW) up until May of 2022. This was the beginning of a change in leadership where Value outperformed growth which has lasted up to today. Most recently, we see that a column of X’s has materialized starting in May of this year indicating Growth has outperformed Value. Growth (IVW) broke higher above a previous column of X’s and the next area of resistance for IVW is at 45,423.89. It is too early to say that Growth has taken over leadership vs Value (IVE) as the overall trend down which still favors Value (IVE). The comparison chart is still below the long-term down trend line which will act as strong resistance going forward for Growth (IVW). It will be interesting to see going forward if the Growth area can gain more traction vs its Value counterparts and further advance its very early stages of leadership.Intuitively, in a rising and extended bull market one would expect to see Growth outperform Value while in market pullbacks and instability Value outperforms Growth. This raises the question of where we are at in this relationship cycle. Are we at just a short-term trend of rising X’s where growth’s resilience over value reaffirms itself or can this change in trend material further.
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