20 Jan 20th January 2025
Index Movement For 2025
| S&P500 | +2.9% |
| Nasdaq | +2.8% |
| Aussie All Ords | +0.2% |
US stocks ended the week as one of the best weeks since the November election with gains of almost 3%. This came on the back positive economic data. Inflation readings were not as high as feared and retail sales was generally weaker across the board. This led to a drop in 10-yr bond yields as it shows a slower economy and increases chances of Fed rate cuts.
Of course, next week we will see more numbers and if they are high then these gains will be unwound. Such is the fical nature of short term stock moves and it is much easier to just ignore the day to day or even week to week and concentrate on the long term influences.
Like earnings.
Earnings season started last week with the banks and it’s a good time to be a banker. JPMorgan Chase (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) all handily beat Wall Street estimates for the fourth quarter, boosted by surging trading activity and a pickup in deal flow — and the boom times are just getting started. Executives are anticipating more M&A and IPO activity in the months ahead as interest rates come down and regulation lightens up. That means more fees in the bank for Wall Street’s biggest firms.
There has been a back-log of deal flow in the last couple of years, but the incoming Presidency is much more deal friendly and so that back-log could soon find its way forward.
Although the banks have started to move higher, there is still room for further growth this year and it is worthwhile having some exposure to this sector.
Valuations
It seems like every second article I read talks about stock valuations being at all time highs which then goes on to say that means they can’t go up much more and so gains this year will be low.
Rubbish.
There is one major fact that everyone seems to be overlooking. The makeup of the market is different today to what it has been in the past. Companies that make up the majority of the index (Tech) are far more profitable and offer far more future growth than the companies that made up the index in the past.
It is like saying, the local high school rugby team scored 40 points a season 10 years ago. The best rugby team in the world is scoring 80 points a season now so there is no way the best rugby team in the world can score a lot again this year.
It is just not a direct comparison so you cannot say stocks are overvalued now because they have not done this in the past.
Ignore all these rubbish articles. Stocks can easily do another 20% this year.
Time to Breakout of the Trading Range?
As we head into yet another holiday-shortened week, US indices appear to be breaking out of their pullback. For now, the gains Friday were not the sort of decisive break above a downtrend that technicians like to look for as evidence that a rally will sustain. But this is certainly starting to look more like a normal correction than the start of something larger and more violent.
Sideways periods are common. We have had five such periods since the start of the current bull market in October 2023.
The current period of 25 trading days since the last high is less than the average of 57 days in the last five instances. There is nothing special or different about this time. It is just an exercise in patience for investors while we wait for the next leg higher.
IPO ETF
IPOs (Initial Public Offering) are popular with investors. It is the first time the public can take ownership in fast growing companies. But it is very hard for us here in Australia to participate in a US IPO, but we have found a novel way to do so.
The Renaissance IPO ETF (IPO) is rebalanced each quarter as new IPOs are added and older holdings cycle out 3 years after they go public.
Here are the Top 10 companies in this ETF and how they have performed over the last year
The ETF is beating the market over the past year (+23.7% vs +22.1%) but what really stands out is the 1 year gains from recent IPOs. Recent newly public companies have performed well enough over the last year to provide a near-perfect setup for a good IPO year in 2025.
Might be a nice time to add IPO before this year’s IPOs get going.
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.