September 30, 2024 by GalTrades.com
The beginning of an interest rate cycle causes portfolio managers to reevaluate what’s in their portfolio.
Stock valuations are fully priced, as long as the economic data continues to support the case for a soft-to- (potentially) no landing, it seems the path of least resistance continues to be higher. However, the bulls will likely need Q3 earnings, which start in about two weeks, to come in relatively strong to support current valuations.
China stocks recorded one of the largest weekly gains on record. In the U.S., several industries that potentially benefit from China’s stimulus plan, such as materials and industrials, outperformed this week.
The China story can put a floor for steel prices.
China issued the most stimulus package since COVID, Analysts are saying this is the first inning. The rate cut, lower interest rate, cutting down payment for investment properties by 10%, 140 billion in new lending, they are focused on consumption stimulus. And the Government said they are committed to more, that should lead to better growth.
Portfolio managers have been very underweight and unexposed to China. they have to jump in otherwise their clients may complain. As of now it should be a trade for a few months. Whether this is a long-term play remains to be seen.
Stocks and ETF’s that so upside momentum from the China trade, FXI, KWEB, BABA, JD, LI, PDD, BIDU, NTES, FCX, ETN, WYNN, LVS (63% of LVS revenue is in Macau, they are due to stop spending on renovations early 24)
View my YouTube from last week regarding KWEB and where I see the ETF next targets according to technical analysis.
Positives signs for the market: GDP estimates point to a healthy economy 3.1 % real GDP pace, there was a huge increase in wealth 16 straight months of wage gains, should be continued momentum for our economy. On the other hand, strategist forecast relative to where the market is trading now are the most bearish 5483 which is 5% below where the S&P500 is currently at.
This week’s economic data was mostly bullish for equity markets: this morning’s inflation data helps support the case that inflation is on track toward the Fed’s 2.0% target; jobless claims continue to come in below estimates; and
Points to consider: The market wants to melt up some more, first because the Fed will likely loosen monetary policy further. The Fed’s dot plot outlined several more cuts to come; high rates need to come down to support economic growth. That all but guarantees that the economy will stay in growth mode and won’t hit recession any time soon. Lower rates would only boost consumer spending on housing and other goods and services—a demand picture that will spur investment from companies, helping the industrial economy specifically. As long as the market envisions this growth trajectory, it can stay up. S&P 500 trades at 21 times expected earnings for the coming 12 months, the high end of its range since the Fed moved rates up from 0% in early 2022. But earnings are increasing. The index is currently trading at less than 21 times expected 2025 earnings of $276 a share according to FactSet, so the index could hold strong through the end of this year. Earnings per share for the index could grow 14% annually to $310 in 2026. As long as cost inflation—such as moderate increases in wages and salaries, isn’t too burdensome companies could increase their profit margins a bit.
Next week we only have a few earnings reports. so, the focus will likely remain on the economic data. Friday’s monthly jobs data will be the highlight, but Tuesday’s JOLTS report will provide an important read on the labor market. .The S&P sold off following the release of the last two monthly jobs reports (-1.8% & -1.7% respectively). In the days leading up to Friday’s report however we shouldn’t expect too much volatility. And depending on the jobs data report we’re probably going higher or lower.
There is an upcoming negotiation deadline (Monday at midnight) between East Coast dock worker unions and terminal operators which could result in a strike. If the dock workers end up striking, this may put some selling pressure on stocks because of the potential inflationary impact on goods prices.
Lots of talk about jeans trends these days keep an eye out for Levi Strauss & Co. (LEVI) reporting on Wednesday.
Nike Inc. (NKE) is reporting on Monday, China is 15% of Nike sales.
The market is powered by the rotation, look at the fallowing ETFs for confirmation: RSP is the equal weight, IJR is mid cap and IWM is small cap, industrial, materials energy & Cyclical were amongst the strongest this week, we want to see continued upside.
Is this market priced to perfection? It seems so; therefore, we need to keep an eye on earnings and economic data.
META new all-time highs, ETN is a part of data center energy infostructure story. If your building data centers, you need industrial earth moving equipment as well.
The Russell 2000 the index appeared to be breaking out of a bull flag formation. If the RUT is able to clear its prior 52-week high from back in July, this could shift the “rotation trade” into a higher gear and would likely be viewed as a bullish confirmation for the overall economy.
On a technical level, the NDX filled the July 17 GAP, the SPX RSI on a weekly chart has lower high’s which is concerning given the fact that its not supporting the SPX move higher.
Due to the technical issues, I see and the fact that a lot of indicators are very stretched I think one should trade with extreme caution.
Daily Levels for October 1, 2024
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