Speculative growth stocks are continuing their 2021 descent
We are only two full trading sessions into the new year and we are already observing a 9.1%-point difference in performance between the travel basket, helped by the good news on the Omicron variant, and bubble stocks which suffering from the latest move higher in the US 10-year yield and investors continuing their rotating out of speculative growth and adding inflation hedges such as mega caps, financials, energy and mining.
While we think that a better balance between the physical and the online is warranted in the portfolio as inflation will run higher for longer due to physical constraints across energy and metals during the green transformation. But short-term we think a tactical trading opportunity is emerging as many bubble stocks will continue to show high revenue growth, whether they can deliver on operating margin is a different story, and that they will be bought back again by investors. The next couple of weeks could be tough for speculative bubble stocks, but our thinking is that investors will pick them up ahead of the earnings season betting on revenue surprises lifting share price against deteriorating expectations.