What investors might watch for in 2024's second half

Hey, mooers!

Sarge highlighted some critical factors that investors can keep an eye on for the rest of the year:

Inflation and Rate Cuts: Inflation remains a top concern, with Federal Reserve Chairman Jerome Powell's comments and policies on interest rates being crucial. A potential rate cut in September could influence inflation dynamics significantly.

Election News: The U.S. presidential election could introduce significant volatility, especially with the upcoming presidential debates.

Sarge noted the strong performance of the S&P 500 and Nasdaq Composite, hitting new all-time highs at the beginning of July, but expressed concern about narrow market breadth. Sarge emphasizes the importance of following trends and broader market rotation to help manage the risk of a potential downturn, even in an election year.

Sarge emphasized caution but not inactivity during economic uncertainty and the upcoming election. He suggests monitoring trends and policy changes from key figures like Jerome Powell and Janet Yellen. If high-performing stocks like NVIDIA slow down and competitors close the gap, it could signal a market shift.

Stock Splits: Historically, stocks tend to run up before a split and sell off slightly afterward. But this isn't supposed to be impactful or mean much. While some stocks have done well after splits recently, it's not a reliable indicator of future performance.

Indicators of a Market Bubble - Valuation Metrics: When evaluating sectors like the Artificial Intelligence sector, Sarge suggests using price-to-sales or price-to-book ratios to identify potential bubbles. The commercial real estate bubble appears to have popped, and the residential real estate market is at a crossroads, with home prices highly volatile.

Sarge mentioned that commodities and material stocks might perform well in an inflationary environment with slowing economic growth. Sarge forecasts that inflation at the end of the year will make commodities and material stocks worth a look. In contrast, small and mid-caps typically underperform in slow-growth scenarios.

Gold Market: Precious metals like gold could perform well in a stagflationary environment. The potential creation of a gold-backed reserve currency by BRICS (Brazil, Russia, India, China, and South Africa) nations could significantly impact gold prices, reducing the U.S. dollar's significance and boosting gold's value.

Lower interest rates could favor utilities and dividend-paying stocks due to their stable returns. Consistent movement in the SPDR 11 sectors  (11 sectors out of S&P 500) can indicate a shift towards perceived safety or dividend payers. As interest rates decline, bond proxies like REITs and utilities usually become more in demand.

Technology and AI Sectors: Sarge discussed that investors may pay attention to daily performance tables of sector SPDR 11 (11 sectors out of S&P 500) for potential rotation out of tech stocks due to lower interest rates that may favor dividend-paying stocks. Additionally, investors should monitor the growth in sales and customer counts of infrastructure providers like semiconductors for AI-related stocks, while being mindful of software companies facing margin pressures from high CapEx spending. If semiconductors experience a decrease in profits from AI, and software providers do not see significant profits from AI, there may be a rotation out of tech stocks.

Fed Actions: Sarge mentioned the Federal Reserve may cut interest rates if necessary in September, with a 59% chance of a 25 basis point rate cut and possibly 50 basis points by the end of the year.

Inflation: Sarge expects there may be a potential increase in inflation from October into the first quarter of 2025. He warns that a rate cut in September could seem like an error if inflation reignites.

Impact of Rate Cuts on Financials: Rate cuts may not necessarily harm financials. If the Federal Reserve lowers short-term interest rates, while long-term rates remain stable due to market dynamics, the yield curve would steepen. This steepening could improve net interest margins for banks.

Jerome Powell's Testimonies: Jerome Powell's recent testimonies impacted the financial sector, particularly regarding the Basel III proposals, which require large banks to increase their reserves by 19%. However, Powell said ongoing negotiations may lower the proposed increase, which could lead to a rally in large U.S. banks.

Bank of Japan and Global Markets: Sarge emphasized Japan's role as the largest foreign holder of U.S. Treasuries. If Japan needs to raise capital due to the yen's devaluation, converting dollars to yen could weaken the U.S. dollar and raise U.S. interest rates. Sarge underscored the delicate balance the Bank of Japan (BOJ) must maintain, noting its substantial potential influence on both domestic and global financial landscapes.

🌟 Mission accomplished, mooers! Remember, the market battlefield is unpredictable; Even the most seasoned traders can't win them all. But with Sarge's strategies in your arsenal, you might earn your stripes needed to keep up.

Remember to tune in to the next live session with Sarge. Until then, keep your portfolios polished and your ratios razor-sharp! 💼✨