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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.

· 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

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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

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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

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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.

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Violeta Todorova

Senior Research

Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.

Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.

Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.

Julian Manoilov

Marketing Lead

Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.

Oktay Kavrak

Head of Communications and Strategy

Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.

È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.

Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.

Sandeep Rao

Research
Sandeep è entrato a far parte di Leverage Shares nel settembre 2020. È responsabile della ricerca sulle linee di prodotto esistenti e nuove, su asset class e strategie, con particolare riguardo all’analisi degli eventi attuali ed i loro sviluppi. Sandeep ha una lunga esperienza nei mercati finanziari. Iniziata in un hedge fund di Chicago come ingegnere finanziario, la sua carriera è proseguita in numerose società ed organizzazioni, nel corso di 8 anni – da Barclays (Capital’s Prime Services Division) al più recente Index Research Team di Nasdaq. Sandeep detiene un M.S. in Finanza ed un MBA all’Illinois Institute of Technology di Chicago.

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