Market Musings 140924: Buy the Breakouts
Podcast this week: (click on link below)
Our Investment Strategy for September 2024 (podcast)
Link to report and video:
Investment Strategy Focus September 2024 (video and report)
Summary:
In a stock market which is consolidating during the seasonally weakest month of the year, buy segments that are breaking out to new highs and thus showing relative strength.
1. Short- and long-term interest rates have declined sharply since May
The move lower in interest rates has been most dramatic in the US, but has been mirrored in the eurozone and UK as inflation rates have returned to or close to the central banks’ target of 2%. Major central banks around the world (except in Japan) should cut benchmark interest rates this year and next.
US 10-year bond yield falls from 4.7% to 3.7%
2. The reset in interest rate expectations in the US has weakened the US dollar against other major currencies
The euro, pound sterling and Japanese yen have all strengthened against the US dollar since June
3. Gold and silver have been major beneficiaries of lower interest rates and a weaker US dollar
Gold has historically performed well during US Federal Reserve rate-cutting cycles. This time seems to be no different, with the Fed about to cut rates for the first time in this cycle next week, and gold hitting a fresh all-time high closer to USD2600/ounce.
4. Global stock market returns close to all-time high despite adverse seasonality
Remember that September is statistically the weakest month of the year for stock market returns.
In contrast, the best 6 months of the year in terms of stock market seasonality starts in early October (the Halloween Effect).
5. US S&P 500 index leads the way higher, while other markets lag
But this time, it is not just the tech stocks doing all the legwork…
6. As the Magnificent 7 stocks are underperforming, in relative strength terms
