Source: Zhitong Finance "Since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%)." With the rebound of the stock market, the old adage "Sell in May and Go Away" seems to have been a bad advice once again. Last month, the S&P 500 index rose 4.8%, the best May performance since 2009. The NASDAQ 100 index rose nearly 6.2%, and the NASDAQ Composite Index rose 6.9%. Goldman Sachs FICC & Equities Trading Division said: "History doesn't really support this saying. Don't sell, leave the market (go on vacation), and enjoy the good times." The rising trend is still to be continued? If history is any guide, it may indicate that the rise of the stock market is not over yet. Looking ahead to the rest of 2024, Scott Rubner, Managing Director of the Goldman Sachs Global Markets Division and tactical expert, pointed out the following historical background for investors. Rubner stated that the S&P 500 index has risen 10.7% year-to-date, and since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%). "Since 1950, the median return of the last 7 months of each year (June 1 to December 31) is 5.4%. In the aforementioned 21 cases, the average performance of the last 7 months increased to 8.1%." Rubner added. Rubner also pointed out that the NASDAQ index has risen for 16 consecutive Julys, with an average return of about 4.64%.
So far this year, a long list of external factors have failed to stop the continuous rise of US stocks, and with the arrival of the US election, political turbulence seems to be no exception.
Last week, investors' resilience was once again reflected. In this week, the fierce election did not stop the performance that was repeated in 9 out of 11 weeks: rising. Even the market that was initially hit hard by the debate of Biden, such as US government bonds, has become noticeably calm due to economic data supporting rate cuts. For the time being, the rising trend of risk assets continues no matter how turbulent the background is, because the market believes that the US economy is expanding enough to avoid a recession, and there are still reasons to relax policies of the Federal Reserve. Enterprise crediting and csi commodity equity index also joined the rise last week. Socorro Asset Management LP's Chief Investment Officer Mark Freeman said: "The Federal Reserve is still the dominant factor and people believe that interest rates will eventually be lowered." As for politics, "the question is whether there will be a major change in fiscal policy," he said, "currently, right or wrong, people think it will not happen." The S&P 500 index rose nearly 2% last week, the biggest increase since April, as data showed that the services sector contracted and unemployment rose, enhancing people's optimistic sentiment of rate cuts. Due to Biden's poor performance on June 27, which sparked bets that Trump's takeover would signal looser fiscal policy, the yield on 10-year US government bonds initially soared, but then wiped out the gain. It was the same for the dollar, which fell in the first week for the first time since May. $S&P 500 Index (.SPX.US)$Despite the continuing rise of the stock market being welcomed by the bullish, some of whom even regard the higher odds of Trump's victory as a catalyst, a somewhat unusual background has been created in the run-up to the election. For example, compiled data shows that the current P/E ratio of the S&P 500 index is 26 times, higher than any election day since at least 1990.
No matter how turbulent the background is for now, the rise of risk assets continues because the market believes that the US economy is expanding enough to avoid a recession and there are still reasons for the Federal Reserve to relax policy. Enterprise crediting and csi commodity equity index also joined the rise last week.
Mark Freeman, Chief Investment Officer of Socorro Asset Management LP, said: "The Federal Reserve is still the dominant factor and people believe that interest rates will eventually be lowered." As for politics, "the question is whether there will be a major change in fiscal policy," he said, "currently, right or wrong, people think it will not happen."
The S&P 500 index rose nearly 2% last week, the biggest increase since April, as data showed that the services sector contracted and unemployment rose, enhancing people's optimistic sentiment of rate cuts. Due to Biden's poor performance on June 27, which sparked bets that Trump's takeover would signal looser fiscal policy, the yield on 10-year US government bonds initially soared, but then wiped out the gain.
Valuations remain high.
Although the continuing rise of the stock market is welcomed by the bulls, some of whom even regarded the higher odds of Trump's victory as a catalyst, this has created an unusual background in the run-up to the election. Among the seven giants, the technology giants once again led the market last week, and the market had an optimistic view on the earnings elasticity of these companies during the AI boom. Financial stocks are considered to be the beneficiaries of a potential Trump victory, partly because of his relaxed regulatory agenda, but the sector's gains were only about a quarter of technology stocks.
Although valuations are a famously poor tool for timing the market, the high valuations of the US large-cap stocks suggest that their performance over the next decade will be significantly behind that of the large caps, and the returns of the entire US market may be relatively sluggish because of their large share.
Dan Suzuki, Deputy Chief Investment Officer of Richard Bernstein Advisors, said: "The high valuations of US large-cap stocks suggest that their performance will be significantly behind that of the large caps over the next 10 years, and because they account for such a large share, the returns of the entire US market may be relatively sluggish."
However, when Biden won four years ago, US stocks were also relatively high in valuation, and it turned out that this did not hinder the market from rising. Since Biden defeated Trump in November 2020, the S&P 500 index has risen by 65%.
News from the strategist field also illustrates the difficulty of being bearish on the rising US stocks. It was reported that Marko Kolanovic, a well-known short seller at JPMorgan, will resign. At the same time, Piper Sandler's analysts said they would stop releasing predictions about the year-end target for the S&P 500 index, because the excessive focus on the indicator made their predictions meaningless.
Jeff Muhlenkamp, the head of Muhlenkamp Funds, who has beaten 97% of his peers in the past three years, said: "The performance of the stock market this year has been quite stable: the seven giants have risen, and other sectors have not performed well. Among them, it is difficult for people to believe that this situation will continue, given the high valuations of leading enterprises. But so far, that's the case. "
Is politics not yet affecting the market entirely?
Last week, technology giants once again led the stock market, and the market was optimistic about the earnings elasticity of these companies during the AI boom. Financial stocks are considered to be the beneficiaries of a potential Trump victory, partly because of his relaxed regulatory agenda, but the sector's gains were only about a quarter of technology stocks.$NASDAQ 100 Index (.NDX.US)$Another indication that politics is not yet entirely affecting the market is that while Trump's support for cryptos has become more open in recent months, their price has still plummeted. Traders attribute this pullback to other factors, including the expectation of a sell-off caused by the bankruptcy of the exchange Mt. Gox.
Cryptos$Bitcoin (BTC.CC)$Traders attribute the recent pullback to other factors, including the expectation of a sell-off caused by the bankruptcy of the exchange Mt. Gox.
It is problematic to attribute the market volatility solely to the changing political tide, even with 4 months to go and friendly and unfriendly factors for the market in the agenda of each candidate. It is obvious that investors constantly get what they want from the data: economic weakness, easing inflationary pressures. "This makes the Federal Reserve return to play a role," Caputo said, referring to the central bank's penchant for saving the market, "market participants are encouraged."
Giorgio Caputo, Senior Investment Portfolio Manager of Gideon Strategic Partners, said,"Although it is easy for people to attribute the market fluctuation to the constantly changing political trend, it is a problematic solution to do so with advent of the fact that there are friendly and unfriendly factors for the market in the agenda of each candidatefor the 4-month deadline before the election. It is obvious that investors constantly get what they want from the data: economic weakness, easing inflationary pressures."
The only thing that can stop the US stock market from rising is a recession?
However, there are strategists who hold a different view and expect that the Federal Reserve will not be able to prevent an economic recession, resulting in a 32% stock market crash in 2025.
BCA Research's chief global strategist, Peter Berezin, said in a recent report that an economic recession will hit the US economy later this year or early 2025, causing the S&P 500 index to fall to 3750 points. This forecast makes him the most pessimistic strategist on Wall Street.
The widely held view of a soft landing is wrong. The U.S. will fall into recession at the end of 2024 or the beginning of 2025. Growth in other parts of the world will also slow sharply," Berezin said.
Berezin's pessimistic outlook is based in part on the view that the Fed will be “dragging its feet” on rate cuts and won't intentionally ease financial conditions before the economy significantly contracts. By then, it will be too late.
Berezin stressed that as job vacancies sharply decline from the peak after the epidemic, the labor market is weakening. The continued decline in resignation rate, recruitment rate, and the recent downward revision of the April and May employment reports also indicate a slowdown in the labor market. The increase in unemployment rates may eventually lead to consumers reducing spending to accumulate “precautionary savings,” which will occur when consumers' borrowing capacity weakens due to rising delinquency rates. Eventually, a negative feedback loop will develop in the wider economy, leading to stock market turbulence.
Berezin explained: “With little accumulated savings and increasingly limited credit supply, many households will have little choice but to cut spending. The reduction in spending will lead to job cuts. Rising unemployment will curb income growth, leading to reduced spending and even further increases in unemployment rates.”
In addition, Berezin also added that perhaps most importantly, the Fed's plan to curb any economic recession through rate cuts will simply not work.
"It's important to recognize that what's important to the economy isn't the fed funds rate itself, but the actual rates paid by households and businesses," Berezin said.
For example, the average mortgage rate paid by consumers is around 4%, while the current mortgage rate is around 7%. This means that even if the Fed cuts interest rates and mortgage rates fall, the average mortgage rate paid by consumers will continue to rise. This also applies to loans for businesses and their desire to refinance in the next few years.
"These dynamics will trigger more defaults and bring pain to the banking system. The problems that affected regional banks last year have not disappeared," Berezin said.
Editor / jayden