fbpx

Fed hikes done, Stocks time to shine

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

· Typically, after the last rate hike, S&P 500 returns go up

· Nov-Dec Period historically proves to be strong for US equities

  • Magnificent 7 balloon popping?

Learnings from the past

Periods following the end of the tightening cycle frequently, meaning over 80% of the time, result in stock returns being positive in the months post the last Fed hike, as shown by data over the last 40 years.

Although the full effect of rate hikes takes time to feed into the real economy and the financial markets, resulting in weaker earnings growth due to consumers, who account for a good majority of all spending, getting squeezed. Equity valuations usually get a boost from the Fed’s dovish or less restrictive stance, as market participants start pricing in the effects of rate cuts on equities with more confidence.

A graph of a graph

Description automatically generated with medium confidence

Source: J.P. Morgan Asset Management

Bulls look to be gearing up for a huge end-of-year rally.

The last two months of the year frequently turn out to be great for equities.

Despite October’s negative return, which marked the 3rd consecutive month of declines for the S&P 500, for the first time since the COVID-19 pandemic, an event with a relatively rare occurrence in the market.

This negative streak is on track to be broken in November-December, the strongest two-month return period on average.

The festive spirit and many discount campaigns, including Black Friday, allure consumers to spend more, lifting the economy and revenues for many public companies.

Further, on average, the last month of the year has the highest chance of positive monthly returns for the S&P 500 at 74%, according to historical data by LPL Research.

A graph of different colored bars

Description automatically generated

Source: LPL Research

Potentially, lower long-term rates and a stable growth environment will serve as a tailwind of equities/

If we look at SPX average returns by months and extrapolate that for 2023 YTD, it’s clear that it has much room for growth, potentially finishing near its all-time high of 4800-ish, helped by what could turn out to be another major Christmas rally.

A graph of a graph showing the average calendar year

Description automatically generated with medium confidence

Source:GS GIR and GS Asset Management

The S&P 500 has been rallying lately due to better-than-expected macro data, including SLOOS numbers revealing that lending standards tightened at a slower rate than last quarter and softer CPI print that bolstered bets that the Fed had ended its hiking campaign.

Magnificent 7 balloon

However, one big caveat here is that most, if not all, of the gains in the S&P 500 come from AI-related stocks.

The market, especially its engine, the magnificent 7, appears to be quite expensive on a given where ten-year Treasuries yield is, despite its drop from 5% to 4.5% in the last few weeks.

The “big 7” trades at a jaw-dropping of close to 30x forward earnings, while the rest of the market is at 17x. In a historical context, given where rates are, the S&P 500 is slightly overvalued at 19x earnings vs its long-run average of 15x.

What is more, the concentration in the S&P 500 is tighter than ever. The “Big 7” adds up to nearly 29% of the S&P 500’s weight, while its top 2 contributors, Apple and Microsoft, account for over an eye-popping 15% of the whole index.

All in all, if the AI mania goes down, the S&P 500 will likely follow suit.

Investors can long the S&P 500 using our 3x US 500 , 5x US 500

Alternatively, they can short or hedge their long positions on the S&P 500 using our -3x US 500

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Related Posts

Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Violeta-540x540-1.jpg
Sandeep Rao
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Violeta-540x540-1.jpg
Violeta Todorova
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
March’s CPI rise undermines the Fed’s hopes for a soft landing.
March’s CPI rise undermines the Fed’s hopes for a soft landing.
Violeta-540x540-1.jpg
Boyan Girginov
March’s CPI rise undermines the Fed’s hopes for a soft landing.
March’s CPI rise undermines the Fed’s hopes for a soft landing.
March’s CPI rise undermines the Fed’s hopes for a soft landing.
Stocks are off to a rough start in the new quarter as inflation persists.
Stocks are off to a rough start in the new quarter as inflation persists.
Violeta-540x540-1.jpg
Violeta Todorova
Stocks are off to a rough start in the new quarter as inflation persists.
Stocks are off to a rough start in the new quarter as inflation persists.
Stocks are off to a rough start in the new quarter as inflation persists.
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Violeta-540x540-1.jpg
Sandeep Rao
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Q2 is poised for European stocks’ turnaround and rising interest in energy stocks
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Violeta-540x540-1.jpg
Violeta Todorova
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
Escalation of the conflict in the Middle East threatens to derail the economic recovery.
March’s CPI rise undermines the Fed’s hopes for a soft landing.
March’s CPI rise undermines the Fed’s hopes for a soft landing.
Violeta-540x540-1.jpg
Boyan Girginov
March’s CPI rise undermines the Fed’s hopes for a soft landing.
March’s CPI rise undermines the Fed’s hopes for a soft landing.
March’s CPI rise undermines the Fed’s hopes for a soft landing.
Stocks are off to a rough start in the new quarter as inflation persists.
Stocks are off to a rough start in the new quarter as inflation persists.
Violeta-540x540-1.jpg
Violeta Todorova
Stocks are off to a rough start in the new quarter as inflation persists.
Stocks are off to a rough start in the new quarter as inflation persists.
Stocks are off to a rough start in the new quarter as inflation persists.

Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

Gold Retreats But Rally is Not Over

Copper Ready to Explode

Q2 2024 Market Outlook: Rocky Road Ahead

What is an ETF? (Exchange Traded Fund)

How do Leverage Shares ETPs differ from other leveraged ETP issuers

How Do Leverage Shares ETPs Trade in Multiple Currencies

Build your own ETP Basket
Leverage Shares: Europe’s top leveraged and inverse ETP provider.
Main ETP benefits
Common investor questions