A New Dawn for Global Markets?
Revisiting the Good, the Bad, and the Ugly: Global Stock Markets at a Crossroads
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Thank you for reading this week's edition of Closelook@Global Stock Markets, dated November 09, 2024 👋. The next edition will be published on November 16, 2024, at 2.00 p.m. ET.
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A Closelook At This Edition
This Week's Action: Global Stocks In Bifurcation Mode
Global Stock Markets: Comprehensive Overview Of 36 Global Stock Markets
Trump Markets: The Good, the Bad and the Ugly
The ETF Portfolio: Some Bigger Changes
This Week's ETF Spotlight: Potential Trump Winner ETFs
Knowledge Corner: Investment Ratios
Upcoming Transactions: More Rebalancing Ahead
Final Words: Don’t Fight The Fed, And Don’t Argue With The Tape
(1) This Week's Action: Global Stocks In Bifurcation Mode
The week spanning from Monday, October 28 to Friday, November 01, 2024, displayed severe cracks in the global bull market narrative. The week spanning from Monday, 04 November until Friday, 08 November, displayed stock markets in bifurcation mode and healed most of those cracks.
Three groups of markets could be identified - the good, the bad, and the ugly. Group Good stock markets are beneficiaries of the Trump victory. Group Bad stock markets identified themselves as losers. Group Ugly stock markets were in bad shape before the US election, which did not change after the election result.
The Dow Jones Global Index moved north in the past week - from the 4900 level to 5000 (see above chart, top left).
It broke the very short-term downward channel to the upside (see above chart, top right). It found resistance at the downward-sloping consolidation trendline, which formed in September 2024 and provided resistance to the rise of the index in late October (see above chart, bottom left).
I expect a break above the trendline to occur next week if the US CPI and PPI show that inflation is still moderating (see above chart, bottom left).
This may lead to the traditional year-end rally, which may last until the end of January (typical seasonal pattern).
The index looks like there will be a further extension inside an already extended wave 3 before a more significant consolidation wave 4 is shaping.
The price action since the end of September looks like a consolidation inside an ongoing bull market and not like a topping formation. The long-term bull market channel is fully intact.
(2) Global Stock Markets: Comprehensive Overview Of 36 Global Stock Markets
Argentina, Taiwan, Hungary, Germany (DAX), Spain, and India continue to be the six best-performing global stock markets outside the US, taking a one-year perspective.
The table below displays 36 global stock markets. Laggards are France, Mexico, South Korea, and the German MDAX.
While the German DAX is among the top global performers, the MDAX is among the worst. DAX companies derive +70 percent of their revenue internationally. They are not an indication of the state of the German economy. MDAX companies do most of their business inside Germany/EU. They are an accurate indication of the state of the German economy.
The only index in the red, the worst-performing index globally, taking a 1-year perspective, continues to be the Russian RTS Index.
Taking a 5-day (Trump week) view, the picture changes considerably. Various Chinese stock markets have been the top performers. The Russian stock market also greeted the Trump victory with joy, as did Taiwan stocks.
Laggards have been European stocks as well as those in Indonesia and India. The failure of the ruling coalition distorted price action in Germany.
Inside China, stocks benefiting from more domestic stimulus have been top performers. I expect the second leg of the China bull to manifest now, led by domestically oriented stocks.
The Russian RTS index has been in a multi-year bear market. This may end soon. The markets anticipate a Trump-brokered deal between Ukraine and Russia to occur relatively quickly.
The Indian Nifty Index has been in corrective territory since September 2024. I believe the index may have found a bottom and will start another bull leg soon.
It broke above the short-term downward trend line and found support at the 24000 level.
I will be adding to the current positions starting next week. The first level to buy is at 24000 on the Nifty-Fifty index, and the second and third are at 22800 and 22000.
The Euro Stoxx 50 Index moved lower by about three percent during the past week. It again found support at the critical 2-year trend line.
A heavy resistance zone has formed from 5000 to the spring 2024 tops.
The index may see a new 52-week high, but the move looks like the final move up (for quite some time).
Europe looks like the big loser of the Trump election.
(3) Trump Markets: The Good, the Bad and the Ugly
Based on the initial market reaction, the following global markets may be net beneficiaries of the Trump election and have either sound or improving funnymentals and technicals.
The Good
Domestic Chinese stocks: There will be additional government stimuli to offset the Trump tariffs.
Small Cap US stocks: Only if interest rates do not rise too much
Taiwan stocks: The markets anticipate that Taiwan may benefit from the Chinese stimuli. The AI-related and semiconductor-based bull market is in full swing and will continue in 2025 and 2026.
Russian stocks: The markets seem to anticipate a Ukraine-Russia deal brokered by the Trump administration.
Domestic energy stocks: Drill baby drill has been one of the Trump slogans.
The Bad
European stocks: Trump does not care about Europe. Tariffs will hurt the European exporters, and the Eurozone faces structural problems. Germany is a nightmare on its own. Europe lacks an attractive tech sector in which to invest.
Rate-sensitive emerging markets: If bond vigilantes start to threaten the US credit markets and long-term rates go up beyond 4.5 % (and move close to 5 %), this will hurt some emerging countries with debt tied to the US Dollar and US interest rates.
Alternative energy (solar, wind, etc.): The losers from the drill baby drill approach
Chinese exporters and internationally oriented companies, incl. some Internet: Unless there is a deal (brokered by Elon Musk?), I see these companies as big losers.
The Ugly
Japan
Japan is the only developed market economy with rising interest rates and a monetary policy that is becoming more restrictive. This usually does not bode well for equities.
The stock market may have completed nine waves up and may be in a more significant corrective phase.
United Kingdom
The UK stock market looks toppy to me. It is another European crisis economy.
Last week, the market broke below a vital trendline, giving multi-year support.
The UK stock market initially moved up on the Trump election win, only to crater heavily and finish the week in the red.
I do not believe that Donald Trump has any ambition to maintain a special relationship between the UK and the US. The new Labor government turns out to be less friendly to the capital markets.
The economic ties with the EU are only improving slowly. The global trading ambitions of the UK after Brexit turn out to be mostly impossible to achieve.
I do not see a lot of attractive stock market sectors in the UK.
(4) The ETF Portfolio: Some Bigger Changes
The ETF portfolio has increased during the week, reaching an all-time high in mid-October.
The two Indian ETFs and the Roundhill Weight Loss ETF trade in the red. The Bitcoin ETF, the Russel MidCap Pure Growth ETF, and the Global X ETF have been the best performers.
I sold the Chinese Krane Internet ETF and added the S&P Capital Markets ETF SPDR (KCE) and the Russel 2000 Growth Ishares ETF (IWO), which I will detail in the next section.
(5) This Week's ETF Spotlight: Potential Trump Winner ETFs
Financial stocks, small/midcap stocks, and digital asset stocks may be Trump winners.
(1) S&P Capital Markets ETF SPDR (KCE)
The S&P Capital Markets ETF SPDR seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the SP Capital Markets Select Industry Index.
The ETF is well diversified. Exposure to regional banks is minimal.
The table below shows a list of 20 ETFs in the segment. KCE is the nu, number two performing ETF.
(2) Russel 2000 Growth Ishares ETF (IWO)
The iShares Russell 2000 Growth ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities that exhibit growth characteristics.
The Fund seeks investment returns that correspond to the performance of the Russell 2000 Growth Index.
The Index measures the performance of the small-capitalization growth sector of the U.S. equity market.
The fund has more than 1000 stocks in the portfolio and is well diversified.
(3) Vaneck Digital Transformation ETF (DAPP)
The VanEck Digital Transformation ETF (DAPP) is a nightmare for value investors.
It contains all the leading crypto miners, leveraged bitcoin proxies, and more that value investors think will soon go to zero. Digital asset enthusiasts like the industry's assortment of A-team and B-team stocks.
Donald Trump is rumored to be very Crypto-friendly. This would be one way to play the trend.
The ETF is only suited for speculative minds. I am not sure yet whether I will add it to the portfolio. I may increase the current Bitcoin ETF position instead.
