Monthly commentary - Mackenzie Greenchip Team

Written by the Mackenzie Greenchip Team

Key takeaways

• Global assets turned in a small gain in April, based largely on positive response to earnings reports and AI excitement from US mega tech companies.
• At the end of April, a group of ten of these household names represented more than 25% of the entire S&P 500 index and had returned 36% for the year to date.
• Capital spending on industrial products and systems is robust and most industrial and electronics companies are indicating very strong market conditions and outlooks.
• The Greenchip team believes there is sufficient pent-up demand in electricity and other infrastructure to support better growth through upcoming cycles and valuations have improved significantly with lower share prices and better financials.

Macroeconomic recap

Global assets turned in a small gain in April, based largely on positive response to earnings reports and AI excitement from US mega tech companies. As market participants seemingly put the banking crises that emerged in March out of mind, April saw the failure of First Republic Bank and ,as a result, now three of America’s four largest bank failures in history have taken place this year. While the consequent growing economic uncertainty and reduced availability of financing threatened the outlook for much of the economy and led to declines in share prices, investors assessed US tech giants as invulnerable to such changes and bid up their already enormous valuations. At the end of April, a group of ten of these household names represented more than 25% of the entire S&P 500 index and had returned 36% for the year to date. Removing their contribution, the remainder of the S&P was slightly down.

Current positioning and notable changes

With such narrow market leadership, environmental indexes (along with most other sectors) and the Greenchip strategy underperformed the broad averages. Big American companies in the environmental sector such as FirstSolar, Enphase, and even Tesla all reported earnings that were poorly received. Commodity prices including energy, fertilizers, and ‘green’ metals such as copper or lithium all continued their decline off their highs from last year as volumes were generally tepid and customers reduced inventories. Among Greenchip holdings, Alstom declined more than 10% on news of the departure of their CFO to French telecoms company Orange and ST Micro and Infineon declined in spite of solid earnings reports as investors anticipate a cyclical decline in the electronic components market.

Outlook

Nevertheless, capital spending on industrial products and systems is robust and most industrial and electronics companies, including those that are in the Greenchip portfolios and those that are not, are indicating very strong market conditions and outlooks. While investors may expect such conditions are too good to last – and we would agree – we believe that there is sufficient pent-up demand in electricity and other infrastructure to support better growth through upcoming cycles. 

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