17 Jun 17th June 2024
Weekly Index Movement
| S&P500 | +1.6% |
| Nasdaq | +3.5% |
| Aussie All Ords | -1.7% |
Another very positive week for US Growth Stocks but not so for Australian stocks. The big event was the Fed interest rate decision. They kept rates on hold that surprised no-one and the Chair Powell press conference did nothing to change the basic market narrative that 1) the FOMC expects to cut rates in the coming years and 2) the US economy is not near a recessionary tipping point.
Powell was remarkably even-handed in his comments, unlike prior press conferences where he has been either hawkish or dovish. While the FOMC’s new SEP calls for just 1 rate cut this year, down from 3 cuts in the March SEP, the committee’s inflation assumptions are very conservative.
This came on the back of a lower inflation number than expected. CPI was +3.3% for the year rather than +3.4%.
You know what I think about this. Nothing has changed. 3.3% or 3.4% is the same. It will still take a long time to get down to 2.0%.
But it does not matter. Markets are convinced of four things
- Inflation will come down over time
- Interest rates will come down over time
- Companies earnings will go up
- There will be no recession
On that I agree. We just disagree about the timing. But since the market is always forward looking, the exact timing doesn’t really matter. The bull market will continue and Tech stocks related to Gen AI will lead it.
Just make sure you have exposure to them and hold on.
Political Uncertainty
Political uncertainty is becoming a global investment theme this year. Recent elections in India and Mexico hit those country’s currencies and equity markets to varying degrees. Last week’s European Parliament elections had a pronounced effect
Which, of course, makes one wonder about the upcoming US presidential elections and the impact on US equities.
My view is – minimal impact.
The rally we have seen since the 2022 lows has been entirely driven by Generative Artificial Intelligence. Who becomes president will not make a difference to this. Plus, Big US Tech is deeply committed to influencing Washington through massive political donations and lobbying.
Everything in global equity markets is relative, and on that basis, US large cap stocks should be less exposed to political uncertainty than the rest of the world. You could even make an argument that external political uncertainty is a benefit to big US Tech stocks as money flows to where it is safe.
So, I’m not worried about the upcoming election. It will not derail our profits.
It’s all about the Big Boys
Take a look at this. This is for Q2 so far and breaks down the S&P500 by market-cap decile.
The largest 10% of stocks in the S&P500 is up 2.0% this quarter when the rest of the index is down.
The same theme holds true on a year-to-date basis:
It really is all about AI and I see no reason for this to change.
Same playbook as has been the case for the last 18 months. Stick with US large cap tech. It might be boring, but it is good for your portfolio balance.
Next Week
The RBA meets, eats a barrel load of iced vovos, drinks tea and does nothing. But gets paid for that. How do I get on the board? Not much of anything else happening so should be a fairly quiet week
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.