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S&P 500, Nasdaq100, and Russell 2000

The Bulls Are Charging, But with a Strange Sector Mix and Rollercoaster Ride

This week was a true rollercoaster ride in the stock markets. Ahead of the interest rate decision, I hedged about one-third of my portfolio, which prevented me from fully benefiting from the positive euphoria following the rate decision. I plan to close this position by Tuesday at the latest, provided the stock markets continue to react positively to the rate decision early in the week.

Reuters reported that financial advisors in the USA are now starting to reduce their cash positions: https://wkzo.com/2024/09/20/investment-advisers-urge-clients-away-from-cash-after-fed-rate-cut/. The speculation is that this capital could flow into equities. However, Friday was peculiar, as nearly all sectors suffered heavy losses, with only the Real Estate and Utilities sectors ending in positive territory. Cyclical sectors, on the other hand, saw significant declines.

In the utilities sector, there's a narrative that energy demand is massive, and nuclear technology might be deployed (as seen with Oracle: https://www.datacenterdynamics.com/en/news/oracle-to-build-nuclear-smr-powered-gigawatt-data-center/) to meet the growing appetite for power. Additionally, older power plants of various kinds might be brought back online.

My primary scenario is bullish, and I view pullbacks as buying opportunities, especially in relatively strong stocks within specific sectors and industries. Due to the beginning interest rate reduction cycle, smaller and mid-sized companies with strong growth models, which have been burdened by high-interest expenses, are becoming more interesting again. I remain cautious until early October, but November and December are months when I definitely want to be invested in US election years, even if this election year has performed somewhat better compared to previous years.

For 2025, I'm taking a more cautious, short-term approach, as the inverted yield curve in the USA has resolved, signaling a potential recession in the next 3-6 months. This, combined with a more accommodative monetary policy that could trigger a second wave of inflation, prompts me to stay focused on the present. I will continue with risk management, even though it has significantly impacted my 2024 performance negatively.

My secondary scenario would need to unfold in the upcoming trading week; otherwise, I believe the path is clear for the bulls.


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