This week’s update covers;
– The US market is sending a screaming message
– Is Al getting too hot?
– What’s the status in commodities?
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0:00 Market Perspective
4:45 American Stocks
9:26 Aussie Stocks
10:46 Precious Metals & Commodities
22:38 Final Thoughts
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In this week’s update the US market is sending a screaming message is AI getting too hot and what’s the status in Commodities my name is Gary Davis as always this is general advice only and please remember to like And subscribe to the video okay let’s start with a bit of a
Thumbnail perspective on 2024 I’ve been talking about this for weeks now the big picture for 2024 sets up very nicely it all started late October when the FED um changed their tune and the market um put in a big reversal and nothing has changed in fact if anything uh it’s become clearer
Because we’ve had more economic data that confirms uh peaks in inflation and peaks in interest rates so everything is set up nicely however there are plenty of speed bumps out there and I think you have to expect that 2024 will be a very volatile year now that’s good if you’re
Ready for for it because it means that you can sit back and wait for perhaps bigger dips in the stocks that you’re uh waiting on and perhaps look a a little more critically if you own something that’s that’s had a really big run so what are those speed bumps well China
Growth is never easy to to get your head around because you can’t necessarily rely on the data that it’s not heavily manipulated but it would appear pretty pretty definitely that the growth in cha is nowhere near what people expected it to be and that has enormous implications for not only Commodities
But uh in the non-commodity area as well the next question is have rate cut expectations in the US if they run too far too fast I remember going back 3 months or so there was an expectation that the FED would start cutting rates in the second half of the year and now
Those expectations have been moved forward to perhaps some rate Cuts starting in March uh although the odds of that have slipped back a little bit in um in the last week or two and of course we’ve got J political risk just all over the place
Um the the Middle East really is a very unstable area at the moment and could blow up into anything and it’s very difficult to anticipate what the impact to that might be uh there could be a significant impact on inflation that could be the trigger that that sends
Inflation back up again if there interruptions to um to oil supply as one example but just the re-rooting of ships um around uh the bottom of Africa is you know is adding to times and costs which uh which all feed into inflation so there’s plenty of those
Geopolitical risks and and you know who knows maybe cha might take the opportunity to move on Taiwan uh and that would be very nasty so certainly um the Middle East has the potential to be um a bit of a trigger point for for renewed inflation but putting that aside and the market
Seems fairly relaxed about it at the moment is the key thing um 2024 really does look pretty solid now ai of course is contributing to what’s happening at the index Lev all because stocks like Microsoft and Nvidia and Google and meta are uh are just roaring off the planet
On the basis of AI and it would appear that you know this is not Hy that we’re moving into the next phase of artificial intelligence we’re going to see much broader applications going to see a lot more commercialization and um you know a lot of stocks are going to do very well out
Of this but C certainly with some of the majes you’ve got to ask a question whether some stock prices have run ahead of what is any sort of sensible valuation and we’ve got several of the majors that I just mentioned that are trading on forward PE so not not current
Year um but uh forward pees of 35 to 50 times which is which is very extended now okay they earnings growth rates are strong but they’re certainly fully valued to over valued so a lot of the future has been bought forward and it’s you know it’s never a
Good time to be buying into stocks when they’re fully too overvalued so that’s the uh that’s sort of the backdrop uh American stocks ended up Rising 1.2% across the week and I think most of that was on uh on Friday um the odds of a of a March rate cut um are slipping
Fairly sharply they were 70% a week or so ago they’re now down into the the mid-50 so you know my my thoughts are that we should be looking to sort of May June perhaps um but look the market is just marching on anyway and as I said driven a lot by the
Enthusiasm um around uh artificial intelligence the US dollar Index was marginally higher um thanks to the fact that uh the 10year yeari PO back up again to 4.14 which is the highest that’s been for uh many weeks which makes it even more Curious The Incredible strength that we saw in the
US market on Friday um so you know those two things aren’t really all that consistent the vixs edged up a little bit to bit over 13 but still on any measure that is fairly low and the 10e 2ear spread is still sitting in negative territory but only by a minor
Amount so let’s go look at the charts this is the S&P on a weekly chart we’ve now got a clean and very clear breakout uh we ran up to the end of last year to a double top we had one week of consolidation and then that was it the
The next two weeks have been extremely positive so things certainly looking very good at the index level but certainly the Magnificent 7 are um contributing to that very significantly now if we go and look at um where the money is actually flowing the NASDAQ is once again um accelerating
In terms of its outperformance compared to the S&P so through here the line was Rising but modestly so that means that the S the NASDAQ was outperforming but it was very choppy whereas this recent burst that we’ve seen in the last few weeks is is very clear that’s very
Significant outperformance so the point of that is the more aggressive sectors of the market are seeing the money flows um that demonstrates you know a lot of confidence this is semiconductors I you know we talk about this uh all the time because it’s so important and semiconductors have really had a huge
Burst and we had great earnings results from um an look from to one semiconductors and a couple of others so the outlook for um semiconductor stocks looks very good for 20124 and that is huge outperformance versus the S&P when we look at it on a sector level
Xlk technology had a had a booming um couple of weeks this is the last quarter so xlk XLF um XL Y which is consumer discretion and then xlc which is again an aggressive part of the market certainly leading the way if we zero in on the
Last couple of weeks you can see just the incredible outperformance of xlk and xlc the two um the two most aggressive sectors of the US markets significantly more money pouring into those sectors if you look at Australia over the last quarter hasn’t been a lot of change here healthc
Care is has recovered and leading the way and certainly Information Technology uh also was doing uh something similar and energy still bringing up the rear energy in Australia has got two issues one is what’s the oil price doing and that’s been a bit weak but secondly there is just so much um political
Interference in the um in the energy Market in a Australia that it’s it’s very hard for investors to get confident and enthusiastic about that part of our market so that’s uh that’s the US market if we look at the currencies there the US dollar we bounced off this key
Support down here at 100 a half we’ve had a little bit of a little bit of a run up but um but nothing dramatic there and nothing also nothing dramatic happening with the Australian dollar either just checking in quickly on the a6200 again on a weekly chart we’re
Sitting at alltime Highs but unlike the American Market we haven’t broken out yet we’ve pulled back and if you look at the the as6 um 200 the the P the average PE is above the normal historical long-term average so there’s nothing particularly attractive that would comp
Could compel me to you know go and buy any of the top 100 stocks in Australia there is much uh much better hunting elsewhere in the Australian Market okay so 6536 is where we finished our index down uh 1% across the week and look is it the rest we had to have
Because we had a a good run up through November and December or um are we going to just follow the US in a couple of weeks lag don’t know don’t really care too much uh don’t Focus very much on the top 200 in Australia there is um much better opportunities further down precious
Medals gold um finished at 2029 um and it’s still really a hostage to this this debate about the interest rate cut and that’s probably one of the biggest impacts at the moment um that’s holding gold back will um when when and by how much will interest rates be
Cut there is certainly no question there’s more than enough geopolitical risk out there to Warrant a breakout and uh and the emergence of of a renewed uptrend but it’s been in that position for for quite a long period of time converted into Australian dollars we’re just over
3,100 precious metal stocks just no real momentum there either on a global scale there’s there are a couple bright spots in Australia but equally there um there are a couple of negatives as well Evolution mining got hammered down through the week by around 20% I think
It was um on um on some news uh announcements that they made um so things not traveling all that well for some of our major gold producers and if we have a look look at um at the gold market there’s gold on a daily chart so we had significant moves down on Tuesday
And Wednesday and then a partial recovery on um Thursday and Friday giving us a weekly close like thus um we’re still I guess if you want to be optimistic you could say that this is coiling beneath this big quadruple top um and if that is the
Case and does break out then I think gold will be Off to the Races because technically this goes all the way back to August of 20120 and when the price of anything has been held down for a number of years the momentum builds and builds uh and when the breakout
Eventually comes it comes with a significant amount of um of additional Force if you like so so question we’ve got we’ve got an uptrending Channel happening in the um in the gold market through there sorry it’s not giving me the option to create a parallel for some reason so
I’ll just have to draw one in these a rough parallel so we’re sitting about the middle of the channel so we’ve definitely got an UPS sloping channel on a big picture level bearing in mind this is weekly these lows back here were um about uh 15 16 months ago and we’re
In the middle of the channel at the moment so it’s it’s really anybody’s guess which way this goes in the short term and if we go and have a look at gdxj which is the proxy for how gold stocks are going globally there’s not much happening W that a weekly chart you can
See this is 2020 huge recovery after the the covid crash but since then it’s really just deteriorated and we’re pretty much at the same level that we were at uh 12 months ago nothing has really shifted in fact sorry two years ago um so nothing has shifted in gdxj uh in that
Time turn to other Commodities copper he not doing much 379 nickel is really struggling we’ve got a supply glut in nickel currently um and it’s getting you know the outlook here has deteriorated the longer term Outlook has deteriorated to the extent that it would appear that BHP is even considering their options in
Terms of the their nickel business so you you know you know that that these are more than just shorter term aberration there’s also a bit of a wobble in the um electric vehicle growth story at the moment but again the numbers you know can you rely on them
Are they being cherry-picked for certain purposes you know it’s really really hard to know but I think one thing that is very clear to me is that the transition to whatever target has been set whether it’s 2030 for emissions or 2035 or 2050 they’re all completely unrealistic the progress towards those objectives is
Just not going to happen one of the key reasons that it’s not going to happen is the Investments the the huge amount of money that’s required is is just the Investments aren’t attractive enough to draw in the amount of money required to make it happen by those dates now the
World is committed to the to this energy transition but it’s not going to happen in the time frame um that anyone imagines so we may not see the electric vehicle growth story progressing in quite the way that that was thought uh just a year or so ago we’re seeing M shutdowns we’ve seen
It in lithium um and we’re seeing it in some other uh areas as well first Quantum which is a Canadian company operating in Australia um have shut down their mining at Raven Thor Corum in in the Northern Territory um and a number of the um uh a number of smaller uh
Nickel and base Metals uh operations in uh in wa have either been shut down or very close to it so this is real you know this is not just a short-term aberration in commodity prices you know the the decision to put a to put a mine operation on care and maintenance is not
One that’s taken lightly so this this is not uh I don’t believe a transition that we’re going to come out of uh quickly and that has implications for um for the composition of you put folio as I’ve been talking about over recent months West Texas intermediate crude was
Up a little bit about a dollar 73.7 um but uranium was really the the big talking point or continues to be the big talking point it’s the exception in resources and was up to 106 and if we have a look at the um uranium chart you can see it’s starting to go
Exponential it um started to to move up between June and October but has really started to accelerate since since October and we’re up over 100 now and I think there might even be a little bit of a a couple of days of time lag in this
Chart we could even be a little bit higher than that uh if we look at lithium just another perspective for this year I think the interim period to get back to supply deficits um is blowing out and and the shuing of mining operations is evident of that
We’ve we’ve also got Alba M the world’s biggest lithium minor is um is is cutting costs left right and Center so there’s a lot of very concerned lithium um operations out there and you’ve only got to consider that the peak in the spodine price was around $88,000 a ton
We’re now down to $1,000 a ton so it’s um it’s fall a long long way I think much further than anybody thought was uh was likely now whether it’s just manipulation on the part of uh of China who have the capacity because of their control over the supply chains um to do
That um I it would appear that it’s still going to go for an uncomfortably longer period of time I I have no idea and I’m not thinking about when things might get back into balance I think you can say that 2027 2028 things are going
To be really good but you know GE that’s three or four years away whether we get back into a supply deficit that would cause prices to go up um next year later this year 2026 no idea not thinking about it because it tends to color your thinking
But what I but what is pretty evident and is gets repeated in every cycle in every commodity is that many of the Explorers will just not make it they won’t be able to raise the capital to keep themselves afloat to do the drilling um and that they the ones that try to
Raise Capital uh already we’re seeing them having to do so at very significant uh discounts to the current share price so this just has a huge dilution effect on um on existing shareholders so there’s only so far you can push that envelope so many many explorers are not going to make it I
Think I can make that statement with um with a fair degree of confidence so if you go back 6 months I would have said particularly in lithium if you own good quality assets but they may not be you know the biggest and the best in the
World then you know just wait it out because we’ll get back into deficit and prices will go back up and everything will be fine I I don’t think you can say that now I think there’s going to be a lot of seemingly good projects that just don’t have the
Scale um to get the funding and to be able to complete the off-take agreements so you know that if if you want to take one message out of this video today it’s that I think we’re going to see a lot of mining failures in the next 12
Months it’s it’s a it’s a very real issue now it’s not temporary so I think you need to readjust your view um when particularly when it comes to lithium um the vast majority I think are going to struggle and whilst they may eventually reach commercialization the
Share price could go down a lot further yet now some of them are off 70 or 80% um from their peaks but they could lose half their value again from there so I think you need to readjust your view and only be supporting the very largest resources in lithium because they’re the
Ones that are going to be attractive now there are a couple of special situations you know strategic assets they’re not they’re not huge assets but they’re just strategically placed um generally around geography um but apart from those and there’s only a couple of them that I’m aware of
Projects really need to have at least 100 million tons to be um to be considered a high probability um lithium project now you can you can play the casino route on some others but you don’t have the odds with you if you want to invest with a
High degree of probability then you need to be looking at projects of that sort of ilk 800 million tons and above so it’s a matter of you know do you want to invest wisely or do you want to just guess and hope it works out so that’s the situation with lithium it’s
Not a particularly pretty story wrapping it up um as I said many resource groups are facing a pretty bleak future um and many will go out of business and you’ll see them emerge in a few years time in some other commodity um realistically the portfolio balances should have been adjusted
Heavily away from mining in the first half of 2023 which is certainly what what we did in the Insiders Club um we you know effectively stopped buying um uh resource stocks at the start of 2023 and have pivoted away from that and um and have done um done quite well from
It um I just don’t see the odds supporting a near-term turnaround that is worth waiting it out because at the moment the trajectory to the downside is um is pretty strong however on the other side of the board there is a an absolute smus Board of opportunities in non-mining high quality growth
Assets um and that’s you know that’s where our Focus has been and where our Focus will continue to be for the foreseeable future PF follow analyst last week we went through my uranium watch list and and identified um you know some of the opportunities uh there and also touched
On some very important trading strategy lessons as well that’s it for this week There’s the email address and more information on the website and I’ll be back with you next Sunday cheers
