Friday’s Non-Farm Payroll was stronger than expected by most investors. This sent a wave of speculation through the markets driven by the commercial financial media.

Robust data might cause the Fed not to cut rates (as much), as was the belief. This makes markets go down on the good news.

Let’s leave the speculation based on speculation to the amateurs. At The Minimalist Portfolio, we zoom out and focus on the data. 

Over the summer, we will have good to strong growth while inflation is slightly up to flat, which might result in a rate cut in September. Heading into the fall we will see growth start to go down and inflation to go back up.

This is what we call stagflation and is the main theme we are positioning ourselves for. 

Keeping the economic cycle front and center is essential by focusing on the two biggest drivers: Growth and Inflation.

Growth

The growth rate of the global economy accelerated at the fastest pace in a year during May. This was to be seen in the Global PMI that rose for a 7th consecutive month to make a fresh 12-month high.

It gets choppier from here, as seen in the second month's ISM New Orders contracting (number under 50). The ISM is a leading economic indicator, and the new orders are the leading part of it. A reading of -3.7 pts to 45.4 is also a 12-month low point.

In contrast to the slowing of growth we are seeing in the US we are getting A further acceleration in German Services PMI to 54.2 led to a fresh 12-month high in Eurozone Composite PMI, while the Global PMI for May settled at 50.9, notching a 21-month high. 

This is exactly why you should have a global portfolio with exposure to other markets that are growing faster than the US.

Also, the China Services PMI for May jumped from 52.0 to 54.0. When combined with the Caixin Manufacturing PMI, the Composite PMI in China for May hit its highest level in a year!

Inflation

We didn’t have any significant data about inflation coming out this week, but the larger trend remains the same. Higher for longer inflation is a key dynamic we are expressing over our commodity positions.   

Let’s get into the portfolio to show you exactly how to position yourself!

Portfolio

 Overall, we had a flat week. A severe overreaction to the job report caused sharp prices in our commodities plays. This caused us to stay relatively flat at 12,2% while the S&P 500 advanced a few points to 13,8%.

This is not a sprint but a marathon in a timeframe where overreactions to single data points are insignificant. For this reason, I will keep our current positioning.  Let’s get into the entire portfolio!

Energy Sector (XLE) -5,5% Since Entry Fri 19 Feb 2024

This sector goes up along with inflation regardless of growth. It’s the only actual all-weather inflation sector out there. 

Industrial Sector (XLI) +0,2% Since Entry Fri 31 May.

The Industrial sector is a great place to allocate capital in a macro environment of rising growth and inflation.

Copper -6,7% Since Entry Fri 24th of May.

Copper builds perfectly on our theme of rising inflation and a bullish outlook on China.

Silver (SLV) +7% Since Entry Fri 26th of April

Silver continues to build on the inflation theme, performing very strongly.

Gold +11,2% YTD

Gold has been solid historically in the given macro environment, especially relative to the S&P500. It’s a true classic for holding up as a haven asset in higher-volatility environments. 

Germany (DAX) +4,6% Since Entry Fri 19th of April

As we are bullish on Europe, it’s great to have exposure to Germany, which is considered the continent's engine.

France (EWQ) -1,2% Since Fri 24th of May.

As the European Recession ended in Q4 of 2023, France is a great place to allocate capital/ 

 India (INDA) +11,5% YTD

The difference in real growth between India and the median G20 economy is set to reaccelerate in 2Q24, while India is already the global growth leader through 2024.

India (we remain long of India $INDA). All of these countries saw new orders accelerate, improvements in employment, and accelerating input costs.

China (SSE) +0,8% Since Entry Fri 8th of March 2024

China has strongly accelerating Cyclical Data. Including China to the portfolio increases upside while also making sure we include global diversification.

Bitcoin (BTC) +57,7% YTD

I’m not a crypto expert nor am I a long-term holder but the when the excitement about another bull market starts it makes more noise and draws more amateur investors in than anything else. This makes it a self-fulfilling prophecy and something we want to participate in.

I hope you enjoyed this edition of The Minimalist Portfolio. I’m grateful to be outperforming together. 

All the best,
Philippe.