(Bloomberg) — The world-beating rally in Chinese stocks is failing to convince many global fund managers and strategists.
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Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc. are among those viewing the recent rebound with skepticism and waiting for Beijing to back up its stimulus pledges with real money. Some are also concerned many stocks are already reaching overvalued levels.
Chinese shares have skyrocketed since late-September as a barrage of economic, financial and market-support measures reinvigorated investor confidence and prompted the likes of Goldman Sachs Group Inc. to upgrade the nation’s stocks to overweight. The Hang Seng China Enterprises Index, which comprises Chinese stocks listed in Hong Kong, has jumped more than 35% over the past month, making it the best performer among more than 90 global equity gauges tracked by Bloomberg, while raising concern it may be too far, too fast.
“In the short term, sentiment could overshoot but people will go back to fundamentals,” said Raymond Ma, Invesco’s chief investment officer for Hong Kong and Mainland China. “Because of this rally, some stocks have become really overvalued” and they lack a clear value proposition based on their likely earnings performance, he said.
Stimulus announced by Beijing has included interest-rate cuts, freeing-up of cash at banks, billions of dollars of liquidity support for stocks, and a vow to end the long-term slide in property prices. The China National Development and Reform Commission will host a press conference Tuesday to discuss implementation of a package of incremental economic policies.
While there’s plenty of optimism that could underpin a sustainable equity rally, there have been a number of false dawns before, most recently a rally in February that completely unwound.
Ma at Invesco, who was one of relatively few China bulls coming into this year, said he’s in no rush to add to his investments now.
“There are a group of stocks whose share prices are up by 30% to 40% and almost at historical highs,” he said. “Whether in the next 12 months the fundamentals will be as good as before their peak, that’s more uncertain to me. That would be the category we would like to trim.”
The surge in the past two weeks has seen Chinese equities reassert their influence over broader emerging-market gauges, and dented the performance of fund managers who had been running underweight positions in the biggest developing-nation economy. The durability of the rebound will not only matter for the year-end performance of index-tracking funds, but also have direct implications for nations that have trading and investment links with China.
More Needed
JPMorgan Asset Management is just as cautious.
“Additional policy steps would be needed to boost economic activity and confidence,” said Tai Hui, Asia Pacific chief market strategist in Hong Kong. “The policies announced so far can help to smoothen out the de-leveraging process, but the balance-sheet repairing would still need to take place.”
Hui also pointed to global uncertainties that may crimp the nascent stock rally.
“With the U.S. elections only a month away, many investors would argue that the U.S. view of China as an economic and geopolitical rival is a bipartisan consensus,” he said. Moreover, “foreign investors may choose to wait for economic data to bottom out and for this new policy direct to solidify,’ he said.
Slowing Growth
HSBC Global Private Banking remains concerned the steps China has taken aren’t enough to reverse the nation’s slowing long-term growth outlook.
“More significant fiscal easing is still needed to sustain the recovery momentum and shore up growth to achieve the 5% 2024 GDP growth target,” said Cheuk Wan Fan, chief investment officer for Asia at the private bank in Hong Kong. “For now, we stay neutral on mainland China and Hong Kong equities based on our expectation of China’s GDP growth decelerating from 4.9% in 2024 to 4.5% in 2025.”
Goldman Positive
Some are predicting further gains.
Goldman Sachs Group Inc. has upgraded its call on Chinese stocks to overweight, and said indexes tracking the nation’s equities may rise another 15%-to-20% if authorities deliver on policy measures.
Beijing’s recent stimulus announcements “have led the market to believe that policy makers have become more concerned about taking sufficient action to curtail left-tail growth risk,” strategists including Tim Moe wrote in a note dated Oct. 5.
Bond ‘Challenges’
Some investors and strategists are also wary about what the stimulus blitz means for the nation’s bonds and currency.
China’s bonds have dropped since the stock rally started, ending at least temporarily a period in which yields set successive record lows as investors bought haven assets.
“There are still major challenges to be resolved, and it’s not an easy road,” said Lynn Song, chief economist for Greater China at ING Bank in Hong Kong. “We need to ensure that this policy blitz is effective in stabilizing the downward trajectory of the housing market and not just result in a rush of hot money to equities.”
Bonds may become a beneficiary if the stock market cools, Song said. “There’s certainly a risk we could revert back to the previous months’ environment if anything goes wrong in the next steps ahead.”
Yuan traders will be watching out on Tuesday for the central bank’s daily reference rate, the level around which the currency is allowed to trade. The onshore yuan has strengthened more than 1% in the past month to approach the key level of 7 per dollar. A break of that barrier may trigger a further rally.
What to Watch
China publishes FX reserves data for September
A swath of countries release inflation data, including Thailand, Brazil, Mexico, Chile and Argentina
Central banks in India, Peru and South Korea announce interest-rate decisions
Mexico and India release industrial production data
–With assistance from Shulun Huang and Carolina Wilson.
(Updates to add view from Goldman in the third paragraph.)
The S&P 500(SNPINDEX: ^GSPC) is one of three major U.S. financial indexes. It measures the performance of 500 large domestic companies that cover about 80% of domestic equities by market value. Its scope and diversity make it the best gauge for the overall U.S. stock market.
In 2024, the S&P 500 advanced more than 20% through the end of the third quarter, the strongest year-to-date performance of the 21st century, according to JPMorgan Chase. That momentum has been driven by economic resilience and euphoria about artificial intelligence, as well as excitement about the Federal Reserve’s recent interest rate cuts.
However, the next presidential election is just one month away, and many investors are curious about the potential implications. Read on to learn how the S&P 500 has performed with Democratic and Republican presidents in the White House.
The average stock market return under Democratic and Republican presidents
Since its inception in 1957, the S&P 500 has increased 12,950% in value, compounding at 7.4% annually. That compound annual growth rate (CAGR) is based on the price return of the index, meaning it does not account for dividend payments doled out along the way. The total return, including dividend payments, would be higher.
The chart below shows the S&P 500’s CAGR during each presidency since the index was created. It also shows the median CAGR under Democratic and Republican presidents.
Data source: YCharts and the White House Historical Association (inauguration dates). Shown above is the S&P 500’s compound annual growth rate during Democratic and Republican presidencies.
As shown in the chart, the S&P 500 has achieved a median CAGR of 10.2% under Republican presidents and 9.4% under Democratic presidents. In that sense, the U.S. stock market has performed a little better during periods when Republicans have controlled the White House.
However, we can also look at the problem from a different perspective. Specifically, instead of analyzing the CAGR during entire presidencies, we can examine the return in each individual year. The chart below shows the S&P 500’s return in each individual year since March 1957. It also shows the median annual return when Democrats and Republicans held the presidency.
Data source: YCharts. Shown above is the S&P 500’s annual return under Democratic and Republican presidents.
As shown above, the S&P 500 has achieved a median annual return of 12.9% under Democratic presidents and 9.9% under Republican presidents. In that sense, the U.S. stock market has done a little better during periods when Democrats have controlled the White House.
Bear in mind that presidents control neither the stock market nor the economy. Their influence is limited to nominations and budget proposals. For instance, the president nominates the seven members of the Federal Reserve’s Board of Governors, but those candidates must be confirmed by lawmakers in the Senate.
Additionally, Kamala Harris has proposed raising the corporate tax rate, and Donald Trump has proposed the opposite. Both changes could impact the stock market and the economy. However, Congress has the final say regarding budget proposals, and lawmakers have no obligation to approve specific policies.
Furthermore, some events that influence the stock market and economy are beyond the control of any elected or appointed official. Consider the dot-com bubble, the global financial crisis, and the COVID-19 pandemic. All those events influenced the stock market and economy, and no single person could have prevented them.
History says patient investors will be well rewarded regardless of who wins the presidential election
There are two key takeaways for investors. First, statistics can be manipulated to achieve a desired outcome. As discussed, the stock market has performed better under Republicans in terms of the median CAGR across entire presidencies, but it has performed better under Democrats in terms of median return across individual years. Both statements are true, but they arrive at opposite conclusions.
Second, avoiding the stock market because one political party controls the White House would be a mistake. After examining returns since the 1950s, analysts at Goldman Sachs concluded: “Investing in the S&P 500 only during Republican or Democratic presidencies would have resulted in major shortfalls versus investing in the index regardless of the political party in power.”
Here’s the bottom line: The S&P 500 achieved a total return of 2,090% over the last 30 years, which equates to an annual return of 10.8%. That period encompasses such a broad range of economic and market conditions that investors can expect similar returns over the next three decades. In that context, the U.S. stock market is a smart place to invest money regardless of which party wins the presidential election in November.
Should you invest $1,000 in S&P 500 Index right now?
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With multiple Wall Street indexes trading near all-time highs, the opportunities to find deals are getting harder. In some ways, it’s a fun problem to have, but it’s also a challenge for those pondering where to deploy fresh funds. Ultimately, the stock market is exactly what its name implies — a market of stocks. Just because some of those stocks are more expensive doesn’t necessarily mean there aren’t still deals to be had.
After an exhaustive search, SentinelOne(NYSE: S), Netflix(NASDAQ: NFLX), and Sea Limited(NYSE: SE) jumped out to three Fool.com contributors as hot stocks with market-beating upside for next year.
SentinelOne is outperforming in 2024, and it may not stop
Justin Pope (SentinelOne): SentinelOne combines cybersecurity and artificial intelligence (AI), two of Wall Street’s hottest themes. The company’s autonomous security platform uses AI to provide cutting-edge protection against cyber threats, garnering high praise from third-party testing throughout the industry. The expensive consequences of breaches have companies seeking high-end solutions like SentinelOne’s, resulting in some of the best revenue growth you’ll find on the market.
Not only did SentinelOne grow revenue by 33% year over year in the second quarter of its fiscal year, which ended July 31, but the company is also making strides toward profitability, which has made investors bullish on the stock and helped it soar nearly 40% over the past year. However, there could be more big returns on the way.
SentinelOne recently announced a deal with Lenovo, the world’s largest PC manufacturer, to include its security software on new PC shipments. Since striking a similar partnership with Dell Technologies last year, CrowdStrike has added over $50 million in revenue thus far. Achieving similar results would move the needle for SentinelOne, which analysts estimate will generate $815 million in revenue this year and approximately $1 billion next year. These estimates could rise once SentinelOne speaks to the Lenovo partnership in future earnings calls.
For all the good stuff happening at SentinelOne and its stellar investment returns, the stock can still outperform the broader market. SentinelOne’s valuation became so suppressed over the past few years that it still trades at a lower enterprise value-to-sales ratio than high-tech peers, including CrowdStrike, Zscaler, and Palo Alto Networks. So no, it’s not too late to buy SentinelOne despite its meteoric rise this year.
The SentinelOne party started in 2024, but I expect this momentum to continue next year.
Netflix may have already won the streaming wars
Jake Lerch (Netflix):Up over 45% year to date, there’s no doubt Netflix is currently a hot stock. However, I think 2025 could be an even better year for the streaming giant. Here’s why.
The streaming wars aren’t over, but it’s clear that Netflix is gaining the upper hand.
For example, According to data compiled by Nielsen during June, streaming video now accounts for about 40% of total TV usage, with cable (27%) and broadcast (20%) trailing far behind.
And when you drill down on the streaming component, it’s clear who the big winners are. Alphabet‘s YouTube leads the way with 9.9% of streaming usage, while Netflix is second with 8.4%.
The next closest streamers are Amazon‘s Prime Video (3.1%), followed by Disney-owned Hulu (3%) and Disney+ (2%), and Tubi (2%). None of the other major streamers, including Paramount+, Comcast‘s Peacock, and Warner Bros. Discovery‘s Max, crack the 2% mark.
In short, Netflix has maintained its competitive edge in the streaming market. Not only that, but the overall streaming market continues to take share from traditional sources of viewership, such as cable and broadcast television.
As a result, Netflix’s fundamentals continue to shine. In its most recent quarter (the three months ending on June 30, 2024), Netflix reported year-over-year revenue growth of 17% and an operating margin of 27%. Both figures are up significantly from a year earlier.
In summary, Netflix has not only survived a serious challenge to its business model, but it has also come through the streaming wars stronger than ever and is well-positioned to build on its past success. 2025 could prove to be an excellent year for Netflix as the company ramps up its ad-tier business. Investors would be wise to consider Netflix now, ahead of what could be a banner year.
The recovery is well underway in this pandemic stock
Will Healy(Sea Limited): After a brutal sell-off in the 2022 bear market, it might finally be time to pivot back to Sea Limited. The Singapore-based conglomerate prospered during the pandemic as its retail, gaming, and fintech segments served its locked-down customer base.
However, conditions turned negative as the lockdowns ended and economies reopened. Its formerly No. 1 smartphone game, Free Fire, lost some of its popularity after 2021, and it was banned in India over national security concerns. Moreover, instead of investing in logistics in its Southeast Asian markets, where it is the leading online retailer, its retail arm, Shopee, entered markets in Europe and Latin America, where it held no competitive advantage.
All of these factors led to the stock falling 91% between the fall of 2021 and the beginning of 2024.
Fortunately for Sea Limited shareholders, Shopee exited most of its non-Asian markets and has invested heavily in logistics infrastructure in its home region. Moreover, Free Fire experienced a resurgence in popularity, and Garena continues to work with the Indian government to bring Free Fire back to that country.
Additionally, fintech arm Sea Money has continued to prosper, and in the first half of 2024, it was a contributing factor in Sea Limited’s revenue rising 23% year over year to over $7.5 billion.
However, a 73% increase in sales and marketing expenses sent net income plunging. The majority of that increased spending pertained to e-commerce investments, while it also spent heavily on its Sea Money operations. Still, these investments should lead to higher revenue and profits longer-term.
Investors seem to have taken to the company’s new strategy, as the stock is up over 115% over the last year. Also, while the lower net income skewed the P/E ratio, its price-to-sales (P/S) ratio of 3.8 is not far above a much larger e-commerce conglomerate, Amazon, at 3.3 times sales. When considering that the stock is still 75% below its 2021 high, such a valuation should position Sea Limited for significant gains in 2025.
Should you invest $1,000 in Sea Limited right now?
Before you buy stock in Sea Limited, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Sea Limited wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $765,523!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, CrowdStrike, and Walt Disney. Justin Pope has positions in SentinelOne. Will Healy has positions in CrowdStrike, Sea Limited, and Zscaler. The Motley Fool has positions in and recommends Alphabet, Amazon, CrowdStrike, Netflix, Palo Alto Networks, Sea Limited, Walt Disney, Warner Bros. Discovery, and Zscaler. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.
With proper insight and timing, an investor could have profited mightily from electric vehicle (EV) sector in recent years. For instance, had you invested $1,000 into Tesla(NASDAQ: TSLA) when its shares went public in June 2010, you’d have more than $156,000 today. Nowadays, many investors are looking for the next Tesla. If that’s your goal, pay attention to the two companies on this list.
Looking for the next Tesla? Here it is.
While many investors are looking for the next Tesla, it’s fair to mention that it’s still possible to invest in the original Tesla today. The company has a gargantuan $850 billion market value, but that shouldn’t stop you from jumping in.
There are two reasons to believe the stock still has plenty of long-term upside. First, shares are cheaper today than they have been in years. That’s due to a massive dip in revenue growth. Earlier this year, Tesla actually experienced a decline in companywide revenue. As a result, Tesla’s price-to-sales ratio has fallen from the mid 20s to under 10. To be sure, that’s still expensive, but it’s a bargain relative to the company’s history.
A cheap valuation on paper, however, is only attractive if you believe the company is about to turn the corner. Take note of the chart below. Tesla has experienced massive dips in revenue growth before, with its valuation usually following suit. A huge reason that things turned around was a jump in electric vehicle sales, as well as the introduction of new models like the Model 3 and Model Y — both of which resulted in sales spikes that persisted for several years.
According to Bloomberg, “Electric vehicle deliveries have been essentially flat since early 2023, and that’s not likely to change anytime soon.” But fortunately, Tesla has something else up its sleeve. “Tesla’s robotaxi event next week,” Bloomberg reports, “will see Musk lean even harder into the narrative of self-driving vehicles, artificial intelligence and robots.”
Am I buying into Tesla’s robotaxi hype? Not just yet. But Musk has dreamed big before. Sometimes he delivers, and sometimes he doesn’t, but it’s often a smart move to back the horse with a winning track record. And despite the company’s recent missteps, Tesla is still the company to bet on if you’re bullish on EV stocks in general. But if you’re looking for the most upside potential possible, the next stock on this list is for you.
TSLA PS Ratio Chart
This EV stock has huge growth potential
While Tesla is still a great stock to bet on for those bullish on the EV space, its shares are still expensive and the company’s biggest days of growth are likely behind it. Rivian Automotive(NASDAQ: RIVN) is in the opposite situation. Its biggest days of growth are very much ahead of it, and shares aren’t as expensive as you’d think.
Earlier this year, for example, Rivian was posting revenue growth rates above 80% year over year. Those growth rates came at a time when Tesla’s revenue base was actually shrinking. And while Rivian’s growth rates have converged with Tesla’s more recently, most of that has come from industry pressure and the maturation of its models.
This year, EV sales forecasts have been repeatedly trimmed industrywide, and Rivian’s two existing models, the R1T and R1S, have already been on the market for several years. But that’s all about to change.
TSLA PS Ratio Chart
Earlier this year, Rivian announced three new models: the R2, R3, and R3X. All are expected to be priced under $50,000 — the magic price point that EV makers need to sell beneath in order to market to mass audiences. Also, while EV sales in general have slowed this year, most long-term forecasts still predict massive growth in the years to come. Passenger EV sales are expected to surpass 30 million by 2027, according to a recent report from Bloomberg. And this figure should grow further to 73 million per year by 2040.
Rivian’s new models aren’t expected to hit the streets until 2026. That gives plenty of time for market conditions to improve as most forecasts predict. And in the meantime, investors can lock in a market capitalization of just $11 billion. That results in a price-to-sales (P/S) ratio of only 2.1 for Rivian versus Tesla’s premium P/S multiple of 8.8.
You’ll need to be comfortable with volatility as Rivian attempts to ramp up its manufacturing capabilities, as well as market new models to a consumer base still skeptical of EVs. But if you truly want to invest in the next Tesla, Rivian has all the characteristics you’d want to see.
Should you invest $1,000 in Tesla right now?
Before you buy stock in Tesla, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Tesla wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $765,523!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
David Kelly, the chief global strategist at JPMorgan Asset Management, has issued a warning to investors, urging them to exercise caution and reduce risk in the current market environment.
What Happened: Kelly expressed his concerns about the market’s current state, despite the recent surge in stock indexes driven by robust economic data and a significant rate cut from the Federal Reserve, reported Business Insider. He emphasized that the potential for a soft landing could lead to increased risk for investors.
“I will say that although I think this is positive for the equity market, I am getting increasingly queasy about the fact that the equity market keeps on pricing in a soft landing,” Kelly said.
He cautioned that as the market continues to anticipate a soft landing, valuations rise, making asset prices more vulnerable to market shocks. Kelly suggested that investors should reduce risk and shift their funds from growth stocks to value stocks.
He also noted that the average American’s wealth has surged, which may prompt some investors to take on more risk than necessary. Kelly advised against this, suggesting that investors should only take on the risk required to achieve their financial goals.
Why It Matters: The warning from Kelly comes at a time when the market is experiencing significant highs. The S&P 500 Index, tracked by the SPDR S&P 500 ETF TrustSPY, has been hitting all-time highs, sparking optimism among investors.
However, the market is facing a complex economic landscape, with various factors such as labor disputes and natural disasters complicating the interpretation of economic data. Renowned economist Claudia Sahm has highlighted the potential impact of labor market data, adding to the uncertainty.
Despite these challenges, Bank of America has identified crucial dates for the stock market leading up to the November Presidential election. The bank used options prices to predict potential movements in the S&P 500 index. The most significant date is Nov. 6, the day after the election, with an estimated 2.5% move in either direction.
The massive demand for energy as Big Tech races to build its AI infrastructure has been a tailwind for GE Vernova (GEV), the power equipment maker that spun out of iconic GE earlier this year.
Shares of the Cambridge, Mass.-based company have been hovering near all-time highs, along with the broader S&P 500 Industrial ETF (XLI), as investors look to play off the electrification and artificial intelligence theme led by AI chip heavyweight Nvidia (NVDA).
“[Vernova] seems to be caught up in the broader trade of AI and power demand,” Daniel Rich, analyst at CFRA, told Yahoo Finance. The firm has a Buy rating and a price target of $230 on the stock.
Much of Wall Street’s bullishness stems from expectations of power demand growth stemming from Big Tech’s commitment to record infrastructure technology investments.
“Because of how much more power we’re going to need —if the projections are accurate to power data centers — to power AI applications, Vernova is definitely a winner,” he added.
One Wall Street analyst dubbed the $72 billion company the “supermarket” for the electric power industry — from natural gas turbines used to generate electricity to servicing of power plants, modernizing electric grids, and building wind turbines.
“This company does everything,” Raymond James managing director Pavel Molchanov told Yahoo Finance in an interview this week.
“Because the buildout of electric power infrastructure is an all-of-the-above story, that means all of these solutions are going to be needed,” he added.
The analyst notes Vernova’s reach is global, with roughly 30% of its revenue stemming from the US. Some of its big competitors, like Siemens Energy, Schneider Electric, and ABB, are based abroad.
Vernova expects to deliver 70 to 80 heavy-duty gas turbines per year in 2026, up from roughly 55 for the last few years. Servicing those units is also expected to grow substantially.
“We’re seeing increasing demand for power generation, driven by manufacturing growth, industrial electrification, EVs, and emerging data center needs,” Vernova CEO Scott Strazik said during the company’s latest earnings call over the summer.
The recent deal between software giant Microsoft and nuclear power provider Constellation Energy (CEG) to restart a reactor at Pennsylvania’s Three Mile Island is one recent example of the growing energy demand among Big Tech.
The partnership has made Morgan Stanley analysts more bullish on the prospects of gas-powered plants adjacent to data centers.
“We believe a co-located data center and gas-fired power plant utilizing GEV’s gas-turbine equipment could be announced in 2025,” Morgan Stanley analyst Andrew Percoco wrote in a note last week.
The analyst reiterated an Overweight rating and increased his bull case scenario price target on the stock to $397 from $371.
A rendering of GE’s 7HA gas turbine. (Business Wire) (Business Wire)
Vernova stock is up more than 100% since its spinoff, compared to the S&P 500’s (^GSPC) 21% year-to-date gain. That’s despite negative headlines in the company’s most challenged unit — its wind turbines — after incidents of blades breaking off in key offshore projects.
Molchanov from Raymond James cautions the strong run-up means there could be little room to run, though.
“It’s an S&P 500 stock that has doubled in the last six months. If that sounds a little bit like certain other AI-related companies that people are familiar with, well, that’s not a coincidence,” said Molchanov.
Calling the AI-fueled rally “overstretched,” the analyst and his team downgraded the stock from Outperform to Market Perform based on valuation. Much of the enthusiasm over AI is already baked into Vernova’s share price, he said.
“The bottom line is that we think the stock could use a period of consolidation after its sentiment-driven gains, and we look forward to revisiting our rating if and when the trade becomes less crowded,” he said.
The stock has 19 Buy, six Hold, and two Sell analyst recommendations.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
(Bloomberg) — European equities erased gains and US equity futures dipped as tension in the Middle East tempered optimism about the US economy following Friday’s stronger-than-expected jobs data.
Most Read from Bloomberg
The Stoxx 600 index was little changed. Treasury 10-year yields rose to hover just shy of the key 4% threshold as investors trimmed bets on big Federal Reserve interest-rate cuts. The euro, pound and most Asian currencies weakened against the dollar. Crude oil drifted lower.
Trading is being shaped by signs of resilience in the world’s largest economy after employers added the most US jobs in six months in September. Wagers on a “no landing” scenario — where US growth momentum remains intact and inflation reignites — stand to boost the greenback while triggering a drop in haven assets.
Still, investors are wary about rising geo-political risks as the world awaits Israel’s potential response to Iran’s missile attack last week. Israel bombed Hamas targets across Gaza on Monday to prevent what it said was an “immediate” threat of rocket fire the group was planning to mark its devastating attack a year ago.
The US jobs report Friday pointed to an unexpectedly strong employment situation, which leaves a soft landing still on the cards, Michael Brown, a senior research strategist at Pepperstone, wrote in a note.
“Sentiment and conviction are still somewhat capped by ongoing tensions in the Middle East,” Brown added. “So long as geopolitical tensions continue to simmer, conviction among equity bulls may be a little lower than usual, with many preferring to take trades over a shorter time horizon.”
US futures were pointing to a lower open, after the S&P 500 Index jumped 0.9% on Friday thanks to the stronger-than-expected jobs report.
Goldman Sachs Group Inc. economists have cut the probability for a US recession to the long-term average of 15% after the strong payrolls report on Friday, and now expect that the Fed will cut rates 25 basis points in November.
On the US agenda this week are minutes from the Fed’s September policy meeting, as well as consumer-price data. US inflation probably moderated at the end of the third quarter, which suggests policymakers will opt for a smaller interest-rate cut when they next meet on Nov. 6-7.
Here are some key events this week:
Euro-area finance ministers meet in Luxembourg on Monday. ECB President Christine Lagarde will participate
Minneapolis Fed President Neel Kashkari, Atlanta Fed President Raphael Bostic, St. Louis Fed President Alberto Musalem and Fed Board member Michele Bowman speak at different events on Monday as investors listen for any clues to policymakers’ thinking ahead of next month’s meeting
Brazil and Mexico publish CPI data, New Zealand, Israel and India hold interest rate decisions
US CPI for September, the final inflation print before the presidential election, is due Thursday
President Biden embarks on a trip to Germany and Angola, through Oct. 15, his first trip abroad since withdrawing from the presidential race, on Thursday
New York Fed President John Williams gives keynote remarks at Binghamton University in New York. Richmond Fed President Thomas Barkin speaks in a fireside chat on the economic outlook on Thursday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 was little changed as of 8:18 a.m. London time
S&P 500 futures fell 0.3%
Nasdaq 100 futures fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index rose 0.9%
The MSCI Emerging Markets Index rose 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0966
The Japanese yen rose 0.2% to 148.33 per dollar
The offshore yuan rose 0.3% to 7.0773 per dollar
The British pound was little changed at $1.3115
Cryptocurrencies
Bitcoin rose 1.5% to $63,551.21
Ether rose 1.9% to $2,486.09
Bonds
The yield on 10-year Treasuries advanced two basis points to 3.99%
Germany’s 10-year yield advanced three basis points to 2.24%
Britain’s 10-year yield advanced four basis points to 4.17%
Commodities
Brent crude was little changed
Spot gold fell 0.3% to $2,645.44 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Matthew Burgess and Tania Chen.
(Bloomberg) — Top Chinese chipmaker Semiconductor Manufacturing International Corp. led a $13 billion sector rally, after investors bet that Beijing will declare more policy or financial support for an industry central to its geopolitical ambitions.
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Shares of SMIC, which Washington has blacklisted over allegations it aids China’s military, climbed as much as 28% Monday to their highest in four years. That took its gain since Thursday’s close to 65%, or roughly $10.7 billion of market value at the peak. Smaller competitors Hua Hong Semiconductor Ltd. and Shanghai Fudan Microelectronics Group Co. also managed a combined gain of more than $2 billion over the period.
The sector rally mirrored a broad market revival since late September, when pledges of policy support helped reinvigorate confidence in the world’s No. 2 economy. Many investors expect Beijing — as it tries to jumpstart the property and financial sector — to also extend a helping hand to semiconductors. Chips, the basic building block of technologies from AI to EVs, are at the heart of a longer-term conflict with the US for geopolitical supremacy.
Investors are watching for additional policy measures after Chinese leaders signaled their intent to reverse the nation’s growth slowdown. Just before a week-long holiday, the government unleashed stimulus measures from interest rate cuts to a pledge of as much as $340 billion to support the stock market. China’s top economic planner is slated to brief the public Tuesday on a package of policies aimed at boosting economic growth.
Hong Kong-listed shares have for a week been the only way to trade Chinese chip firms, because mainland markets remain closed until Tuesday. Representatives of SMIC didn’t respond to a request for comment outside of normal business hours.
China, which is years behind in chipmaking versus its Western rivals, is pouring enormous amounts of capital into the sector. It’s on track to spend more than $142 billion, the Washington-based Semiconductor Industry Association estimated in mid-2024. As part of that effort, the government has been raising another $27 billion for what’s known as the Big Fund to oversee state investments in scores of companies, including local chipmaking champions SMIC and Huawei Technologies Co.
Beijing and local governments don’t disclose overall semiconductor funding, though certain companies reveal some of the subsidies they get. Estimates vary widely because money comes from state-backed funds, local government financing and an array of incentives and tax breaks.
(Bloomberg) — One of the best measures for gauging demand for cryptocurrencies suggests that some Chinese investors are shifting away from digital assets and back to the nation’s surging stock market.
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While China banned crypto trading in 2021, many mainland residents have continued to use overseas accounts and exchanges to buy and sell digital currencies, in part to avoid capital controls and move assets offshore.
Tether’s USDT stablecoin, the world’s most used cryptocurrency, has been trading at a discount at times relative to the dollar since the end of September, according to Dessislava Aubert, senior research analyst at blockchain data firm Kaiko. The emergence of the discount coincided with a series of easing measures by China’s central bank designed to stem a worsening economic outlook that sent stock prices soaring.
Stablecoins are cryptocurrencies whose value are usually pegged 1-to-1 to assets such as the dollar. They’re used to conduct transactions and as a refuge from the often volatile price swings seen in tokens such as Bitcoin.
“If the traders are rushing to exchange back into fiat currency, it can be inferred that they are panic buying Chinese stocks,” said Livio Weng, chief executive officer of Hong Kong-based crypto exchange Hashkey.
The absence of USDT/Chinese yuan trading pairs on crypto exchanges because of the ban has made the dollar the de facto barometer for measuring activity, Kaiko’s Aubert said. The slight discount suggest more demand for dollars and selling of Tethers.
While it’s difficult to measure on exchanges how much of the USDT selling pressure has come from Chinese investors, other platforms present a clearer picture. Binance’s peer-to-peer marketplace shows that Chinese yuan merchants are giving over-the-counter price quotes in the range of 6.78-6.98 per yuan for USDT, while the offshore yuan trades at 7.07 per dollar in the traditional currency market.
We “can see the correlation there with demand to trade onshore A shares,” said Annabelle Huang, managing partner at digital-asset investment firm Amber Group in Singapore. Some brokerage firms were even open during China’s recent Golden Week holidays to “onboard new customers,” she said.
The demand isn’t just being driven by retail investors, according to Laura Vidiella del Blanco, the New York-based head of business development and strategy at crypto hedge fund MNNC Group. Some of the firm’s institutional investors are shifting allocations to Chinese stocks.
The Shanghai Composite Index jumped 21% from Sept. 23 to Sept. 30, the day before China’s market closed for the holiday.
“These are mostly allocators in Asia who are familiar with the market and have multiple strategies besides digital assets,” Vidiella del Blanco said.
Blockchain intelligence firm Chainalysis Inc. estimates show that China’s over-the-counter brokers are attracting “unprecedented” inflows this year, a sign of the strong demand from Chinese investors on cryptocurrencies despite the ongoing ban.
“First time people wish the national holiday is shorter perhaps, pretty incredible move,” Amber’s Huang said.
Investors looking for a quick and easy way to invest in the biggest and fastest-growing technology stocks in the world have flocked to the Invesco QQQ Trust ETF(NASDAQ: QQQ).
The ETF tracks the Nasdaq-100 index, which consists of the largest non-financial companies listed on the Nasdaq stock exchange. The Nasdaq is historically the exchange of choice for tech companies, so it should be no surprise that the majority of the index consists of technology stocks.
The Invesco fund has dramatically outperformed the S&P 500 index over the past decade, producing a total return of 435% compared to just 248% for the broader index. Still, investors should consider a few other options before putting their money into the popular ETF. Here are three to try.
Image source: Getty Images.
1. QQQ’s little sister
Invesco launched a new ETF in 2020 called the Invesco Nasdaq 100 ETF(NASDAQ: QQQM). It tracks the same Nasdaq-100 index as QQQ, but it offers investors a 5 basis point discount on the new shares versus the older ETF.
Where QQQ charges 0.20% of assets each year, the new Nasdaq-100 ETF charges just 0.15%. While that difference might not seem like much, it adds up over time, and there’s no reason for investors to leave money on the table.
Invesco isn’t offering a lower-priced ETF to investors out of the goodness of its heart. The company faces a lot more competition than it used to when it launched the QQQ Trust back in 1999. While it could easily rack up assets under management at any price in the early 2000s, it needs to offer much more competitive pricing today.
But there are billions locked into the older ETF. Investors with substantial unrealized capital gains may be willing to give up a few basis points in order to delay taxes by not selling. Additionally, the larger asset base makes the fund more liquid, which is attractive for big investors or frequent traders.
If you plan to buy and hold an ETF tracking the Nasdaq-100 index, though, QQQM is a no-brainer compared to QQQ.
2. A contrarian ETF focused on fundamentals
If you take a look under the hood of the Invesco QQQ Trust, you’ll find a heavily concentrated portfolio. The top 10 holdings account for over 50% of the entire fund. What’s more, many of the biggest holdings trade at high prices that aren’t aligned with their fundamental financial performance.
One way to offset the high concentration and prices found in the QQQ Trust is to invest in the Schwab Fundamental U.S. Large Company ETF(NYSEMKT: FNDX). The ETF tracks an index that ranks and weights securities by fundamentals — adjusted sales, operating cash flow, and cash returned to shareholders. The result is a portfolio with far less concentration and a lower overall price relative to the fundamentals.
The Schwab fund sports a P/E ratio of just 19.4 times compared to the Invesco fund’s 39.5 times P/E. While it still has substantial stakes in some of the biggest names in the Nasdaq-100, it also integrates more value stocks into the portfolio. In fact, the focus on fundamentals tilts the fund toward more large-cap value stocks than the growth-stock-focused Invesco fund. But that diversification may pay off for investors in the long run.
The Schwab ETF sports an expense ratio of 0.25%, higher than the Invesco QQQ ETF. But the contrarian play could pay off for patient investors.
3. A small-cap value ETF
The biggest draw of the Invesco QQQ Trust ETF is its strong track record of returns. But one group of stocks has an even better track record than the large-cap growth stocks found in the Nasdaq-100. Small-cap value stocks have historically produced the strongest returns out of any segment of the stock market. The S&P 600 index, which tilts toward small-cap value, has outperformed the Invesco QQQ Trust ETF since its inception in 1999, despite the Nasdaq ETF’s incredible performance over the past decade.
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The Avantis US Small Cap Value ETF(NYSEMKT: AVUV) is one of the best ways to invest in small-cap value stocks. Instead of investing blindly in all small-cap stocks trading at a valuation metric in the lower half of a small-cap index, the fund screens stocks based on profitability to weed out those that may be value traps. It then invests in the remaining companies based on market capitalization. With over 700 stocks in the portfolio, no single investment makes up more than 1% of the fund.
While the Avantis fund is technically an actively managed fund, it shares many more characteristics with passive indexing than active management. The strategy has a great track record of performance based on the founder’s previous experience at investment firm Dimensional. The Avantis fund has nearly doubled its benchmark index’s return since its inception in 2019.
For long-term investors seeking exposure to a piece of the market that can offer stronger returns than the S&P 500 or the Nasdaq-100 for many years to come, the Avantis US Small Cap Value ETF could be a great option.
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Adam Levy has positions in American Century ETF Trust-Avantis U.s. Small Cap Value ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
