Dear all,
In the midst of last month’s market turmoil, our last month’s CEO House View stated that concerns around an Iran-Israel war and Fed interest rate hikes should be viewed merely as ‘noise.’ We stood by our opinion that there would be easing in the capital markets and that fundamentals were still enjoying an upward trend.
The Federal Reserve announced plans to taper QT in May. At its June meeting, it raised rate expectations as shown in the dot plot; however, a lower-than-expected CPI for May suggests there is still potential for preemptive rate cuts in the second half of the year. As a result, major stock indices have reached historic highs. The S&P 500, Dow Jones, PHLX Semiconductor Sector Index, Taiwan TAIEX, India Sensex—all of which we already expressed optimism for during the first half of this year.
We also described three key signals of a market moving into the latter half of its upward cycle, namely: Expectations, Rotation, and Growth Rate. This month, I aim to provide a clearer sequence of events for the rest of 2024, as well as bringing in another important signal: Liquidity.
Stock rotation and the ascent of weaker sectors
The clearest sign of ‘expectations’ and ‘rotation’ this last month came in the form of a three-week-long surge by weaker Chinese and Hong Kong stocks. As well, global indices including the ACWI, EFA, EZU, EEM, and SPY all made stable gains of around 4%. This indicates a healthy rotation among various regions and sectors, leading to a broad-based rise in the markets, including previously underperforming areas.
Meanwhile, companies that have exceeded expectations, such as Nvidia, demonstrate the potential for further gains following their earnings announcements. This suggests that new highs are still attainable as long as fundamentals remain strong. This once again confirms that the second half of the rally has begun, but the bull market is not yet over.
Expect fundamentals to peak in Q2, fall back in Q3, with a six-month lag to follow
Regarding the ‘growth rate’ of fundamentals, many regions are currently improving, including the previously sluggish European and Chinese markets. Meanwhile, regions that led the initial upswing (such as Taiwan and the US) are experiencing more moderate growth, with high-level fluctuations.
