A Financial Market Outlook up to US Presidential Election and Beyond
The month of August has been volatile, to say the least. Historically speaking, August and September are usually quite bad months for stocks. They have the lowest returns of all the calendar months. Average Return per Month (%), since 1990
August 2024 was no different and the beginning of the month was characterized by extreme fear and very high volatility, but this quickly subsided. Inflation fears, previous very high stock price rises for stocks having anything to do with AI, further escalations in the Middle East provoking concerns of a much wider regional conflict, and the unfolding yen carry trade due to an interest rate hike from the Bank of Japan will have all played a role contributing to the significant turbulence.
CBOE Volatility Index (VIX)
Fear & Greed Index - The lower the index value, the more fear, and vice versa.
Continued Short-Term Turbulence Ahead, Challenge for Stocks
However, this downturn was seemingly only a market correction, albeit a very abrupt one. In actuality, the market is relatively strong at the moment with some significant bullish indicators in the medium-term and especially in the long-term. The Federal Reserve is expected to do several interest rate cuts this fall, with a starting 25-basis point cut in September extremely likely.
Now, there's some people I listen to with interest when they speak. One of those is is Tom Lee from Fundstraat. To keep it short, his thesis is that the likelihood of a market downturn over the next 8 weeks is quite high which is an opportunity to buy for value investors. Keep in mind as well that Tom Lee has been very bullish in general about the state of the market for the past 1-2 years compared to others in the industry, so one should heed his caution. Additionally, his predictions have been nearly spot-on this year. Watch the interview below and come to your own conclusion.
The interview was conducted on Monday, September 2nd, the day before the US stock market opened on Tuesday, September 3rd. This is noteworthy because on the Tuesday the NASDAQ 100 dropped 2.47% and the S&P500 dropped 2.12%.The behemoth and market-mover NVIDIA dropped more than 9%, losing over $200B in value in a single day. Did Tom Lee actually mini-crash the market with his comments? Probably not, but we can at least conclude that his prediction caught the wind early on. The US Jobs Report published on Friday, September 6th, will serve as an indication of where the market will go in the short-term. Volatility is to be expected either way it goes. Caution will be needed, but it will also be a chance to buy for investors seeking a discounted price for their favourite value stocks. This is at least the way I will proceed up until the US election. Caution, but observant of opportunities to "buy the dip" in my favourite stocks.
Beyond the US Election and Towards 2025
I do believe a market dip is to be expected but looking ahead, there is a lot of uncertainty and risk but there are overarching factors indicating we will still have a bull market. The way I see it, we are currently in the beginning of new technological transformation that will lead to very substantial productivity gains for the actors making the most of it. I'm excited about AI and the massive infrastructure investments needed to support its growth, as well as the different lifecycles of this revolution. One can expect the AI leaders (to be written about in a future note, so watch out for that!) to keep driving the stock market, even though recent tech volatility has made things a bit shaky. As mentioned before, I also anticipate ongoing uncertainty, especially with global elections and the run-up to November's U.S. vote, which makes being selective and focusing on quality stocks crucial. I will pay a lot of attention to what happens with the interest rates from the world's most impactful central banks. For example, if the Federal Reserve cuts rate in a rapid fashion, then small-cap stocks might be interesting to look at such as the ones in the Russell 2000 Index. I will write more about this in a future note as well. In short, don't make drastic decisions and keep a cool head!
Please note that nothing in any of my posts should be interpreted as investment advice.
By J
interesting