Kim Bolton, president and portfolio manager at Black Swan Dexteritas
Focus: Technology stocks

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MARKET OUTLOOK

U.S. MACRO UPDATE

U.S. stocks are being buffeted by the same dynamic as before, with robust corporate earnings running up against various macro headwinds. These headwinds include higher rates, ongoing trade uncertainty, renewed geopolitical risks with North Korea and Iran, Eurozone political disruptions with Italy and now possibly Spain experiencing stress, and the approaching U.S. November mid-terms. The macro obstacles are real, but earnings are winning the contest: The Q1 season was a strong one and the 2019 S&P earnings per share (EPS) consensus has crept up towards about $175. On that number, the current price-to-earnings (P/E) is just around 15.5 times, providing very strong valuation support and lending the S&P ballast against the market’s headwinds (the $175 EPS figure is a big reason why the S&P has faced such difficulty breaking below the low-end of the recent range at 2,550-2,600).

The big question remains upside potential. A multiple of 16 times gets the S&P back to the upper-end of the range (2,800), but in order to extend beyond those levels investors will require greater comfort with the cycle and earnings for 2020 and 2021. If investors worry about recessionary conditions manifesting themselves beginning in 2019 with an EPS number that could be flat-to-down in 2020 and beyond from the $175 area, the multiple will struggle to get beyond 16 times. However, if the 2020 consensus S&P estimate is even somewhat credible (it now stands at around $190), then P/E could push towards 17 times (which would get the S&P towards 3,000). It remains to be seen whether the S&P can get to 3,000, but the index will likely break above 2,800 before it falls below 2,550 (for the near-term, the index will likely soon break above the recent ceiling at about 2,740 and move to the top-end of the range at 2,750-2,800).

TOP PICKS

DASSAULT SYSTEMES (DSY.EPA)

INFINEON TECHNOLOGIES (IFX.ETR)

TENCENT HOLDINGS (HKG:700)

FUND PROFILE

Black Swan Dexteritas Global Tech Hedge Fund
Performance as of: May 31, 2018

• 1 Month: 4.11% fund, 2.16% index
• 1 Year: 12.10% fund, 12% index
• 3 Year: 26.49% fund, 28.37% index

* Index: S&P 500
*Net of fees and distribution

TOP 5 HOLDINGS AND WEIGHTINGS

1. Amazon: 6.10%
2. Google: 5.91%
3. Red Hat: 5.10%
4. Facebook: 4.84%
5. Infineon Technologies: 4.66%

WEBSITE: www.bsdmi.com