Isaac Jonas
As October 2024 unfolds, the financial landscape is marked by a series of global economic shifts and strategic monetary policy changes, setting the stage for investors to navigate through an environment of potential and peril.
From record-breaking U.S. stock indices to the yen’s historic surge and gold’s safe-haven allure, the past week has been pivotal, reflecting a world where optimism and caution are finely balanced.
This roundup delves into these dynamics, offering insights into last week’s key events, the upcoming economic calendar, and strategic advice for capitalising on emerging opportunities while mitigating risks.
US markets
The Dow Jones Industrial Average and S&P 500 closed at record highs, buoyed by hopes of further Federal Reserve rate cuts following a softer-than-expected inflation report.
This optimism was further fuelled by Federal Reserve Chair Jerome Powell’s indication of potentially two more smaller rate cuts if economic conditions remain favourable.
Powell indicated the rate cuts at the National Association for Business Economics’, (NABE) annual meeting in Nashville on Monday. Despite weak consumer confidence, mining stocks surged on news of China’s economic stimulus, contributing to the market’s upward trajectory.
Global insights
The yen experienced its most significant surge since the 2008 financial crisis, reflecting a global monetary policy shift. Meanwhile, gold prices rose as investors sought safe havens amidst volatile oil markets and geopolitical uncertainties in the Middle-East..
Upcoming events
This week (October 1-5, 2024):
US: Focus on employment data which could influence Fed’s rate decision. Key indicators include JOLTS Job Openings and ISM Manufacturing PMI, already released, showing a resilient job market but a contracting manufacturing sector.
Canada: No major economic releases scheduled, but market sentiment could be influenced by US data and global trends.
Global: China’s factory numbers and continued stimulus measures will be closely watched, alongside European inflation rates which might signal (European Central Bank’s (ECB’s) future policy moves.
Next week (October 8-12, 2024):
US: Non-farm Payrolls and Unemployment Rate will be crucial, potentially affecting market expectations for further rate cuts.
Canada: Scheduled releases include housing starts, which could impact real estate market sentiment.
Global: G20 meetings might influence market sentiment with discussions on global economic recovery strategies.
Strategies for maximising returns:
i) Diversification: Given the mixed global economic signals, diversifying across asset classes could mitigate risks. Consider allocations in technology, health care, and sectors benefiting from green energy transitions.
ii) Sector rotation: With manufacturing showing signs of contraction, rotating towards services or sectors less sensitive to interest rate hikes could be beneficial. The services PMI, if positive, might signal a shift towards service-oriented stocks.
iii) Currency plays: The yen’s strength offers opportunities in yen-carry trades, but with increased risk due to global monetary policy shifts. I stay away from using leverage to invest and trade as so many odds would be staked against your trades.
iv) Interest rate sensitivity: Given the Fed’s hint at further rate cuts, bonds and interest-rate sensitive stocks could see gains. However, keep an eye on inflation data as it could sway the Fed’s stance.
v) Emerging markets: China’s stimulus might not only boost its market but could positively affect other emerging markets through increased trade activities. However, monitor geopolitical tensions closely.
vi) Hedging: With market highs, consider defensive strategies like buying put options or investing in inverse ETFs to hedge against potential downturns. I only use inverse ETFs to hedge my portfolio as I consider options to be too risky for me.
vii) Gold and commodities: Gold’s performance as a hedge against inflation and geopolitical instability makes it an attractive asset. Similarly, commodities could benefit from recovery in global manufacturing if signs of stabilization continue.
viii) Stay informed: With significant economic data releases, staying updated on real-time market reactions and adjusting strategies accordingly will be key.
Conclusively, in the volatile and interconnected world of capital markets, the coming weeks promise to be decisive.
With significant US employment data on the horizon, alongside global economic stimuli and potential shifts in monetary policies, investors and traders are at a crucial juncture.
The strategies outlined — ranging from diversification and sector rotation to smart hedging — provide a roadmap for navigating this complex terrain.
Staying informed and adaptable will be paramount, as market movements could be swift and significant, driven by the
delicate balance between economic recovery signals and persistent global uncertainties.
As always, trader and invest wisely and may the markets be on your side!
Isaac Jonas is a Canada- based economist and consultant at Streetwise Economics. He is also a retail investor and retail trader, focusing mainly on the US and Canadian capital markets. He regularly shares insights via his social media handles. His website is www.streetwiseeconomics.com and can be reachable on [email protected]. Insights shared in this article do not amount to investment advice.
