By Craig McAvinue – 2 October, 2024
“If everyone is thinking alike, then no one is thinking”
Quarter three and the month of September comes to an end and the majority of the markets experiencing more growth. Stand out performer was China which had been in the doldrums until late….
Data from Google Finance
The U.S. Dollar fell as expected with the Federal Reserve decision and general optimism around US shares and spending..
Data from Google Finance
The Federal Reserve’s decision last month to cut interest rates by 0.5% had its usual positive impact, with the higher than expected move reflecting optimism in the growth of the US economy.
2024 is looking to be a top performing year for the S&P 500 though as mentioned in many previous blogs, much of the rally had been driven by “Magnificent Seven”. This somewhat masks the fact that many shares are producing somewhat average returns and around 40% of the companies trading in this exchange are down for the year so far.
The rate cut is the first since March 2020 and now sits at 5%. With the Fed confident that inflation will shortly be at the target of 2% (we saw a monthly decrease to 2.5% from 2.9% in the latest round of figures), spending and economic growth will increase. Coupled with the traditional cycle of quarter four being the best performer, this may give some of the approximately 200 companies who are down for 2024 the chance to end the year in positive territory.
The US however was not the only central bank to cut their rates. The world’s second largest economy, China also did the same.
Although the usual opaqueness surrounding the details, the Chinese government went a lot further than simply cutting rates as a method of support for the economy. A surprise stimulus package outlined continued support for fiscal policy growth and assistance in stopping the housing market decline which has plagued the country for so long now.
This accumulation of measures triggered an incredible bounce with both the Shanghai and Hang Seng markets up nearly 20% for the month. Many analysts have long suggested the low price to earnings offered value in good businesses. This huge spike now provides some substance to these suggestions. The emotions of market sentiment may well see some of these gains reigned in. However there is no harm to investors to see a negative 2024 turned into a potential double digit gain within a couple of weeks.
This was the biggest gain since 2008.
To say this means China is “back” may be somewhat premature. As well as the potential for profit making, a Trump win in next month’s elections (next month – that came a round quickly) could well not turn out favourably for China.
In 2010 it was a widely held belief that by 2030, China would surpass the US as the world’s largest economy. In the years since, most notably due to the pandemic, that inevitability had been kicked down the road a few years, with most believing late 2030s or even 2040 before this landmark moment takes place.
It wouldn’t be right to say that the last month’s events can have a significant impact on this, though are we seeing a “Return of The Dragon”…..?
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