Kim Bolton, president and portfolio manager of Black Swan Dexteritas

FOCUS: Technology stocks

MARKET OUTLOOK:

At face value, May was not a bad month for equities. The S&P 500 managed to gain 0.25 per cent, but under the hood, that move was less impressive. The average stock in the index actually fell four per cent during the month. In other words, mega caps were pulling more than their fair share of weight.

Whether we look just at the last 10 years or going all the way back to 1983, the pattern for June is essentially the same and can effectively be broken into five periods that alternate between gains and losses. The first few days of the month tend to start strong, but the second week of June has been met with selling. By the end of this second week, the broad market indices tend to find themselves right back where they started before going through the entire process all over again. Heading into the final few days of June, the S&P 500 once again finds itself right at the unchanged level before finishing off the month strong. Going back to June 1983, the S&P 500 averaged a gain of 0.15 per cent with positive returns of 63 per cent of the time while the average June performance over just the last 10 years showed a gain of 0.19 per cent with gains seven times.

Beyond June, the markets have a great deal of uncertainty and catalysts on the horizon (i.e. inflation and interest rate direction, the degree of the expected economic slowdown, and various possible ‘black swan events’) that will inevitably lead to market volatility. The market’s trading dynamics have changed in 2023. This year, because the broad market indices are making higher lows and higher highs, the trading (and even the investing) mentality is to buy on dips, versus 2022, when the most lucrative trading psychology was to sell on rallies. Of course this 2023 trading mindset will work, until it doesn’t.

While the market searches for the next fundamental catalyst or technical signal, your BSD portfolio management team will continue to trim those securities that are achieving their respective intrinsic values, and buy those stocks that exhibit longer, more lucrative investment runways. The hedging overlay will always be an important tool to protect your capital in bearish markets, and also an important tool to be "dialed-down" in bullish markets.

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TOP PICKS

Analog Devices, Inc.   [ADI  NASD]

The company provides data converter products, which translate real-world analog signals into digital data, as well as translates digital data into analog signals; power management and reference products for power conversion, driver monitoring, sequencing, and energy management applications in the automotive, communications, industrial, and high-end consumer markets; and power ICs that include performance, integration, and software design simulation tools for accurate power supply designs.

In May, it invested €630 million in next generation semiconductor R&D and manufacturing facilities in Limerick. It announced a new €630 million investment at its European regional headquarters in the Raheen Business Park in Limerick, Ireland. The investment enables the construction of a new, state-of-the-art, 45,000 sq-ft research & development and manufacturing facility. The new facility will support ADI’s development of next-generation signal processing innovations designed to accelerate the digital transformation of Industrial, Automotive, Healthcare, and other sectors.

Dell Technologies   [DELL  NYSE]

The company operates through two segments, Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
The ISG segment provides traditional and next-generation storage solutions, including all-flash arrays, scale-out file, object platforms, hyper-converged infrastructure, and software-defined storage; and rack, blade, tower, and hyperscale servers. This segment also offers networking products and services that help its business customers to transform and modernize their infrastructure, mobilize and enrich end-user experiences, and accelerate business applications and processes; attached software and peripherals; and support and deployment, configuration, and extended warranty services.

The CSG segment provides desktops, workstations, and notebooks; displays, docking stations, and other electronics; and third-party software and peripherals, as well as support and deployment, configuration, and extended warranty services. The company is also involved in the provision of cybersecurity technology-driven security solutions to prevent security breaches, detect malicious activity, respond rapidly when a security breach occurs, and identify emerging threats.

Monday.com Ltd.   [MNDY  NASD]

Monday.com is an Israeli company specializing in the development of software applications and work management tools. The company provides a cloud-based visual work operating system that consists of modular building blocks used to create work management tools for marketing, project management, software development, CRM, business development, consulting, and other fields.

Monday.com's focus on low-code no-code technology is a key differentiator that unlocks the platform's true value. The versatility of the platform has enabled expansion beyond the core project management to non-technical use cases across the organization in teams such as marketing, operations, human resources and finance.