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Strategies to win this spring: cyclical stocks, energy and raw materials

Date: July 14, 2024 Time: 13:44:21

March has once again been a good month for stock markets, but investors will still have plenty to think about in the second quarter. The market prospects are uncertain after such a rapid and strong rise, economic growth could still give unpleasant surprises, and there is still a lot of geopolitical noise in the background. With this new scenario, large investors are beginning to place their bets for the second quarter of 2024.

Rotation to cyclical sectors and companies

Despite the recent rise in inflation, the Fed has taken a less aggressive stance, pointing to the possibility of three 25 basis point rate cuts this year. In Julius Baer’s opinion, long duration stocks, that is, those most affected by a high rate environment, have responded positively. The first rate cut is expected to occur in June, followed by further reductions in July and September, which would reduce the federal funds rate to 4.75% by the end of 2024.

According to the Swiss private bank, non-recession rate cut cycles have been preceded by strong returns. Since the 1980s, the S&P 500 has shown an average return of 14.2% in the 12 months following the first cut, outperforming the average return of 10.4% for the entire period.

This pattern suggests a window of opportunity to increase exposure to cyclicals in anticipation of the new economic cycle in the second half of 2024 and beyond, highlighting the strategy of taking advantage of any market correction to strengthen equity exposure, particularly in equity stocks. quality and cyclical growth.

15% revaluation of the price of raw materials.

With central banks in the United States and Europe anticipating interest rate cuts, Goldman Sachs projects a promising outlook for commodities for the rest of the year. The investment bank forecasts a 15% rise in prices, driven by reduced borrowing costs, a revival of manufacturing and continued geopolitical tensions. This appreciation will especially favor copper, aluminum, gold and petroleum products.

The investment opportunity lies in the selection and strategic timing. Following Goldman’s projections, with expectations for copper at $10,000 per ton, aluminum at $2,600 and gold at new records of $2,300 per ounce, investors can position their investments to capitalize on these movements. On the contrary, the firm considers that other commodities such as nickel, cobalt and lithium carbonate will continue to be bearish in the short term.

Stocks vs. Bonds

Bank of America’s recent analysis highlights growing optimism toward stocks, marking the highest positive sentiment in more than 18 months. The entity’s stock allocation recommendation indicator suggests an increase to 54.6%, the largest monthly jump in three years. This change reflects a significant recovery in investor confidence, driven by the prospect of a strengthened stock market and an expected return of 13.5% over the next 12 months for the S&P 500, projected to reach 5,400 points by the end of 2024.

The investment opportunity lies in the preference of stocks over 10-year US Treasury bonds, according to the firm, anticipating an economic scenario with growth, interest rates and inflation that could exceed current expectations. Bank of America suggests lower probability of interest rate cuts than expected, which favors the stock market over bonds.

Next stage in Artificial Intelligence

Nvidia and Meta (Facebook) register increases of 90% and 44%, respectively, marking a clear contrast with the performance of Tesla and Apple, which have seen drops of 31% and 10%. This change suggests that success in the technology market is no longer based solely on riding the wave of big brands. According to JP Morgan, it is now crucial to demonstrate solid fundamentals in Artificial Intelligence (AI).

According to Samik Chatterjee, an analyst at the investment bank, within the hardware and networking space, an “AI Group” of stocks is trading at a 60% premium over its historical average, while stocks outside this AI sector have barely a 10% premium. Despite this lofty valuation, the AI ​​space continues to offer attractive investment opportunities, even outside the semiconductor domain. JP Morgan highlights names like Arista, Coherent, Dell, Lumentum, Flex and Jabil as top picks in this emerging market.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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