Cyclical Stocks Propel Rally Amid Global Rate Cuts: Is It Too Late to Invest?
US stocks surged last week, driven by easing policies. The Federal Reserve cut interest rates by 50 basis points last Wednesday, its first reduction in four years. On Tuesday, China's central bank announced significant rate cuts and several financial support measures.
In the week following the Fed’s rate cut, utilities, metals, and energy stocks led gains in the US market. $Utilities - Independent Power Producers (LIST2462.US)$ and $Utilities - Renewable (LIST2461.US)$ energy firms in the utilities sector surged 19.6% and 11.5%, respectively. Among metals, $Copper (LIST22865.US)$ and $Silver (LIST2093.US)$ climbed 10.0% and 9.5%. In the energy sector, $Uranium (LIST2430.US)$ and $Coking Coal (LIST2505.US)$ rose more than 19.7% and 9.2%.
The semiconductor sector surged 7.82%, while the $Consumer Discretionary (LIST20755.US)$ segment posted significant gains with $Auto Manufacturers (LIST2468.US)$ up 8.2%, $Footwear & Accessories (LIST2106.US)$ rising 5.2%, and $Internet Retail (LIST2431.US)$ increasing 5.0%.
This robust performance in cyclical sectors indicates market optimism for a soft landing, consistent with earlier projections by Wall Street analysts. Our prior report, "Will Strong Q4 Performance Recur? Analysts Eye Cyclical Stocks," examined these institutional strategy perspectives.
Utilities
Utilities emerged as the second-best performing sector in the S&P 500 as of Wednesday's close, boasting a 26% increase for 2024, trailing only the information technology sector.
Leading the sector, $Vistra Energy (VST.US)$ surged 211% year-to-date, $Constellation Energy (CEG.US)$ climbed 126%, and $NRG Energy (NRG.US)$ rose 75%. Our late-August report, "Are Utilities Becoming the New Equity Sector When Fed Cuts Rates?" underscored the sector's upward momentum, which has persisted.
Utilities are perceived as a "safe" investment, offering high dividend yields that become appealing in a rate-cut environment, outperforming bond yields. The sector also benefits from advancements in artificial intelligence and digital currencies like Bitcoin, which drive energy demand, particularly for electricity.
A significant driver for the utilities sector this year is the soaring electricity demand from AI-related data centers. Goldman Sachs notes that data centers are poised to become the largest growth driver of U.S. electricity demand, with consumption expected to rise from 3% to 8% by 2030.
Energy
The uranium mining sector surged after Microsoft and Constellation announced a record power purchase agreement. Constellation, the largest clean carbon-free energy producer in the U.S., plans to invest $1.6 billion to restart a nuclear plant closed since 2009, targeting a 2028 reactivation. Microsoft will buy energy from the plant for 20 years to power its PJM data centers with carbon-free energy. Constellation’s shares jumped 22%, boosting other uranium and nuclear stocks.
Our article, "Uranium and Nuclear Stocks Surge on Constellation-Microsoft Deal. Who's Leading the Way?" highlights nuclear energy's appeal for its clean, continuous power, crucial for AI-driven energy demands. It also examines notable nuclear stocks including $Centrus Energy (LEU.US)$ , $Cameco (CCJ.US)$, and $Energy Fuels (UUUU.US)$ .
Furthermore, Coking Coal, which has seen significant declines this year, recently experienced a surge, with $American Resources (AREC.US)$ , $Warrior Met Coal (HCC.US)$ , and $Alpha Metallurgical (AMR.US)$ rising over 28%, 12%, and 10% respectively. In the Thermal Coal sector, $Hallador Energy (HNRG.US)$ and $Peabody Energy (BTU.US)$ have also seen substantial increases of 36% and 10% recently.
China's recent announcement of a series of policies to boost the economy and real estate market has spurred global demand for raw materials, driving U.S. metals and mining stocks to their strongest single-day surge since 2024 on Tuesday.
When economic outlook improves, demand and prices for industrially-utilized metals like copper and silver rise, lifting related mining stocks. Copper, primarily used in electricity, home appliances, construction, and new energy vehicles, typically sees robust demand from late September to December.
Recently, standout copper mining stocks include $Metals Acquisition (MTAL.US)$, $Hudbay Minerals (HBM.US)$ , $Taseko Mines (TGB.US)$, and $Freeport-McMoRan (FCX.US)$, all gaining over 10%.
In the silver mining sector, $Silvercorp Metals (SVM.US)$, $First Majestic Silver (AG.US)$, and $MAG Silver (MAG.US)$ rose by 12.1%, 9.0%, and 7.9%, respectively.
Consumer Discretionary
Auto manufacturers are experiencing strong gains, with $XPeng (XPEV.US)$ and $ZEEKR (ZK.US)$ climbing 20.7% and 15.2% respectively over the past week. $Li Auto (LI.US)$ , $Tesla (TSLA.US)$ , and $NIO Inc (NIO.US)$ have also seen increases exceeding 10%.
Despite a significant downturn in the auto sector earlier this year due to weak demand and intensified competition, leading stocks have bounced back. As analyzed in "NIO Surges Over 32% in Five Days, Is an EV Rebound on the Horizon?", short-term catalysts for electric vehicles include the traditional sales peak in Q3, numerous auto shows, and new model launches. Additionally, China's enhanced EV policies are stimulating demand.
JPMorgan raised its price target for NIO from $5.30 to $8.00 following the company's better-than-expected delivery and revenue figures earlier this month. The bank also maintains a positive outlook on BYD and Xpeng. Analyst Nick Lai wrote in a report in early September, "Among China OEMs, we favor $BYD COMPANY (01211.HK)$ in the long term and believe that NIO and Xpeng could experience a relatively stronger rebound in the coming months, given their significant year-to-date underperformance."
Besides, Internet retail stocks have surged recently, with $JD.com (JD.US)$ up more than 23%, $PDD Holdings (PDD.US)$ gaining over 15%, and $Alibaba (BABA.US)$ rising 13%.
Chinese automakers and e-commerce stocks, many of which are U.S.-listed, have surged due to the Federal Reserve's rate cut bolstering market risk appetite and a slew of supportive policies from China. Additionally, the appreciation of the yuan and the long-term undervaluation of Chinese assets could be key drivers for increased inflows from overseas investors.
For more on the surge in Chinese stocks listed in the US, read our report from yesterday: "US Listed-Chinese Stocks Surge Tuesday on Policy Boost, Who Is Leading the Way."
We also published "How Much Room is There for Valuation Recovery in Chinese Concept Stocks?" which highlights the attractiveness of valuations. Analysts generally agree that the rally is a positive response to policy measures, but its sustainability depends on corporate earnings and improvements in macroeconomic fundamentals.
Source: Wind, Benzinga
by moomoo News Olivia
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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