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Table of Content
Mid-Week Insights
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News
China Stocks Primed for Bullish Reopen After Upbeat Data
“The early read from Chinese New Year data, from holiday hotel sales to Macau visit numbers, points to bright spots in services-related industries,” said Linda Lam, head of equity advisory for North Asia at Union Bancaire Privee.
We’ve mentioned that many China stocks are poised for a rally. The Cina economy has been underwater for years now, and with most economies, there's always a rotation or a government bailout once companies start trading near their true value.
From a broader perspective, understanding the economy occurs in waves, bullish moments and bearish seasons. The economy changes, the world changes, and services and technology change. When it changes, it’s important to be able to read, listen, adjust, and find ways to succeed in the next decade of bullish waves.
Rising services costs boost US producer inflation in January
"The Fed isn't losing the inflation fight, but they aren't winning either," said Christopher Rupkey, chief economist at FWDBONDS in New York. "The data are consistent that January is a problem month for inflation."
OpenAI is going to face an uphill battle if it takes on Google search
OpenAI is reportedly building its own search product to take on Google.
Google has the edge here because the world is already content with Google. It’s compatible with everything; you can search things without even typing and as long as Google adds to their product. They are in the driver’s seat.
I think it’s easier for Google to add ChatGPT and other automaton software to their system than it is for Microsoft to take over the online search service.
Bonds & Fixed Income
What happens to Bonds when rates are cut?
Assets in money-market funds pulled back slightly from record territory in the past week, holding roughly $6 trillion in assets as of Feb. 14, according to data from the Investment Company Institute.
When central banks cut interest rates, it often makes bond yields less attractive, leading investors to seek higher returns in alternative investment vehicles.
Here's how this dynamic typically works:
Yield Compression: Lower interest rates result in yield compression for bonds. As the coupon payments on existing bonds become relatively lower compared to newly issued bonds or other investment options, the overall attractiveness of bonds diminishes.
This can also relate to high-interest savings accounts. Many people don’t have money in the market due to the fact that you can still get a lot of return on minimal risk.
Search for Yield: Investors seeking higher returns may shift their capital from traditional fixed-income securities to higher-yielding assets such as dividend-paying stocks, real estate investment trusts (REITs), or riskier corporate bonds.
Equities and Riskier Assets: With lower interest rates, the appeal of equities often increases. Investors may be willing to take on more risk in pursuit of higher returns, particularly if the rate cut is part of a broader monetary policy aimed at stimulating economic growth.
Impact on Real Assets: Lower interest rates can drive investors towards tangible assets like real estate or commodities, as these assets may provide a hedge against inflation and offer potentially higher returns in a low-interest-rate environment.
Stocks might not continue going higher!
In theory, this is where investing in the market can get interesting. Traditionally, if people take their money out of fixed-income investments because interest payments are decreasing, they would immediately run into real estate or equities.
The difficult position in 2024 is that, yes, this bull run can absolutely continue. Still, based on the economic damage economically with an extremely high cost of living, things could move on a downtrend alongside interest rates.
Keep in mind I’m not telling you what will happen; I’m simply providing context so you understand the many situations that could occur.
Why high-yield bond ETFs may deliver 'surprise' outperformance in fixed income in 2024
Monthly Livestreams
Small Caps
Small Cap Companies May Be Ready
A brief read from The Morning Star stated,
“A volatile stretch in small caps is just an 'opportunistic rotation' into the lagging sector, rather than investors betting on a strong U.S. economy with looser credit conditions, says one strategist.”
You can read the full post here.
Let’s break this statement down a bit.
Volatile Stretch in Small Caps:
Refers to a period of fluctuation and uncertainty in the small-cap stock market (companies with a market capitalization typically ranging from a few million to a couple of billion dollars)
'Opportunistic Rotation':
Describes the market movement as a strategic shift or rotation, suggesting that investors are adjusting their portfolios to take advantage of opportunities within the small-cap sector. This rotation is seen as a calculated move rather than a reactionary response to broader economic conditions.
Into the Lagging Sector:
This implies that investors are directing their attention toward the small-cap sector, which may have been underperforming or lagging behind other market segments.
For example, The general market has been bullish; if small caps were laggers, then they should soon become bullish in the coming months.
The term "lagging sector" suggests that small caps may not have seen as much growth or attention compared to other areas of the market.
Not Betting on a Strong U.S. Economy:
Contrasts the idea of this rotation with the traditional interpretation that a surge in small-cap stocks reflects a bullish outlook on the U.S. economy.
Looser Credit Conditions:
Refers to an environment where it is easier to obtain credit or loans. Typically, looser credit conditions can stimulate economic activity as businesses and individuals have more access to capital.
To summarize:
This proposes that the recent turbulence in small-cap stocks is a deliberate repositioning of investment portfolios, taking advantage of opportunities within a sector that may have been overlooked or undervalued rather than a clear signal of optimism about the overall strength of the U.S. economy or credit conditions.
In theory, this could be true for small-caps and mid-caps.
Monthly Livestreams!
Roadmap & Trading Levels
General Market Insights:
We are in a key area, closing under our 5030 pivot last week but bouncing off the lows after an upsetting CPI inflation update by the Federal Reserve.
If you missed last week’s reading, you can view the Sunday read here or our Mid-week recap here.
The goal as an investor is never to freak out. There’s one primary way you can do this. You should never invest more than your risk tolerance. Investments should be made with extra money that is saved specifically for investing. This is the same with trading. It gives you emotional support to let investments or trades take their course.
Reverse Pivot:
Key thought on the bad inflation data. This opens the idea of a possible pause on the rate-cutting conversations. Also, if the Feds cut regardless of the data, we can reverse pivot back to a pause or increase in the future.
Key levels:
E-mini
A weekly area that needs to be held is 4963-70.
If we start closing under here on a daily timeframe, we could see 4930s tested again. If the 4930s become resistant, we could trade the 4890s.
In general, there are a lot of key earnings this week, such as $NVDA, $RIVN, and $SQ. At least, this is our focus. View the earnings calendar below.
Trade & Investing Ideas are below: