Markets & Metals Navigator: Speculative Growth Selloff, Rotation into Cyclicals

Speculative Growth Selloff

The market saw a heavy rotation from speculative growth stocks that have dominated market returns over the last year towards traditional cyclicals.

The CRB Commodity Index rose 1.6% for the week, while the S&P 500 was up 0.8%. The tech focused Nasdaq Index was down -2.1% for the week, while the highly speculative growth Ark Innovation ETF (NASD:ARKK) was down significantly at -10.2%.

Examining the Russell 1000 Growth relative to the Russell 100 Value indices we can see how sharp the recent selloff in growth has been since September 2020 – we haven’t seen a relative drop this significant since the 2000 tech bubble.

Commodities are in the Sweet Spot: Cyclical + Value

If the market is swinging in favor of value stocks and cyclicals there is no other asset class better positioned than commodities.

The FT published a great data series looking at commodities relative to US equities going back to 1969.

The chart clearly shows that commodities are the cheapest they have ever been relative to stocks since the series began, and there has been significant increase in cheapness over the last decade.

Capital 10X views copper and green metals (lithium, vanadium, cobalt) as the best positioned commodities, this is driven by constrained supply and booming green consumer and infrastructure growth.

Oil Rallies after Saudi Arabian Oil Site Attacked

On Sunday Saudi Arabia stated that one of its most protected crude facilities came under missile attack from Houthi fighters in Yemen – Brent crude spiked over $70/bbl (+2%) on the back of the news.

The oil price is now above January 1st 2020 level, even though oil demand is 5% lower.

Ras Tanura is the world’s largest oil terminal, with a capacity to export 6.5 million barrels a day of crude (7% of oil demand) and therefore one of the most protected installations.

Nickel Prices Slump

Last Thursday nickel prices fell more than 8% after a major deal by Chinese firm Tsingshan was signed to deliver nickel matte to two Chinese battery material suppliers (Huayou Cobalt and CNGR Advanced Material).

Nickel prices had previously surged on the expectations of battery-grade nickel shortage, but this current Tsingshan deal highlights the market may have sufficient supply.

African Gold SPAC

While the SPAC boom to date has been focused in high flying tech arenas such as electric vehicles, it’s clear that demand is just as robust across traditional industries – specifically gold.

African Gold Acquisition Corp, a speculative acquisition company (SPAC) targeting gold assets in the African continent, raised $360 million in advance of an NYSE listing this coming Friday.

The offer, which was initially set to raise $300 million, saw its stock sold at $10 a share (typical for SPAC structures). The company will trade under the NYSE ticker AGAC.