Market Musings 140924: Buy the Breakouts
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
These mega-cap former leaders are still far from their mid-July highs.
7. Focus on leading stock market sectors and factors: like the Insurance sector
Insurance companies are benefiting from the ability to raise insurance premium prices even as general inflation slows, reflected in stronger profitability, book value growth and high dividend yields all boosting shareholder returns.
8. Listed Real Estate stocks are also breaking out, helped by lower long-term interest rates
9. The global Health care sector remains an area of strength, buoyed by new blockbuster treatments in obesity/diabetes, cancer and age-related diseases like dementia.
10. Gold miners break out to new year highs thanks to strong gold price momentum
11. Europe and UK dividend strategies (with a built-in value bias) are performing well this year,
And offer 5%+ dividend yields.
12. UK retail banks are prime amongst the star UK dividend performers this year.
13. Coffee: Robusta coffee futures hit new highs on supply shortages
Expect your instant coffee to become more expensive…
Have a great week ahead,
Edmund
Disclaimer
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8 comments
Hi Edmund, appreciate I am pretty late to this (getting your book) and investing generally so still getting my head round some stuff and learning but your book has definitely helped! Was surprised and pleased to see that you are active on the site and it was such a great summary/update Appreciate you may not be able/want to comment but a relative newbie that has come to investing later in life (mid 50s) given the changes to the time of writing such as increased (relatively interest rates rises and the explosion/success of ETFs as you predicted has happened, is the guidance/strategy still as valid today as you predicted it would be? Also given all the info in this article, as an example, how would a beginner seek to navigate the 100s or even 1000s of ETFs out there now and compare those that we have today to find the right current equivalents to balance the seasonal or MATS strategies you outlined? All the best and thanks for a wonderful book that was so easy to read and follow.
Glad you are back with your macro round up.
Something not discussed much on this site is the value of diversification. Gold / silver / Uranium and other commodities provide major diversification benefits. Not only do they reduce the volality of a portfolio but they also offer crash protection in case of a major market sell off.
Great news to get your musings on here again, Edmund. Thank you.
On the increasing gold & silver price, I saw a twitter post arguing this could also be due to anticipation that inflation might still rear its head. Not sure how much credence to give to that vs the lower interest rate argument, but I guess both could be true no matter how bizarre that might seem?
Well
Gold has performed very well over the last 3 US Federal Reserve interest rate-cutting cycles. So I would argue rather the opposite - that the expectations that the Fed will cut repeatedly over the next 12 months thjanks to controlled inflation around 2% is more the driver of the gold price, together with continued buying from central banks around the world.
Although if the interest rate cuts are successful and ensure a so-called "soft landing" in the US (i.e. no economic recession), then we could eventually see a resurgence of inflation down the line once growth and consumer demand rebounds.
But not yet. Rather, the sharp fall in the crude oil price (Brent c. $71/barrel) is driving oil product prices lower, which is a good leading indcator of lower inflation over the next few months...
Edmund
Welcome back Edmund, You've been missed.
I will second that!
A welcome return.
Your absence was noted by those who appreciate how you let the charts do the talking.....otherwise known as those who never progressed past books with pictures.
Great to have you back, Edmund. I've missed your observations.