To The Moon

Following the Fed's moves, the People's Bank of China has jumped on the easing bandwagon too. Last week, U.S. markets showed strong technical demand, while this week, there's a huge bullish appetite in China and emerging markets.

Over in the U.S., the $S&P 500(.SPX)$ hit a new high last Thursday, and there's an initial rotation back into tech stocks. However, small caps have struggled since the Fed's rate cut. $S&P 500(.SPX)$

Looking ahead, Goldman Sachs' chief trader and hedge fund research head, Tony Pasquariello, sums up investors’ dilemma: to chase the rally or not to chase?

Pasquariello remains confident that the overall trend is upward, even though much of it is already priced in. There are two big factors to keep an eye on: earnings season and the U.S. elections.

In terms of earnings, we’re just two weeks away from a crucial reporting season that could make waves. As for the elections, traders aren’t as worried about the potential impact as I expected. It seems like there are plenty of active variables in play right now, making it tricky to assess risk versus reward. To simplify things (because why make it harder than it needs to be?),

Pasquariello said: The Fed is loosening up, and the U.S. economy is picking up steam, so the path of least resistance is still upward for the markets.

This week, semiconductor stocks are on the rise, and the $NASDAQ 100(NDX)$ is just about 3% away from its all-time high. Goldman’s TMT expert, Peter Callahan, noted：

Investors have recently pulled back on tech stock exposure, becoming more diversified and defensive amid all this uncertainty. This shift is especially clear with the semiconductor stocks' rise, as the market's narrative around generative AI becomes a bit more mixed. We can expect more chatter and tension around the idea of chasing the market.

While it’s still unclear if the 50 basis point rate cut by the Fed is going to be the new norm, one thing is clear: the threshold to stop cutting rates is pretty high, while the bar to cut again by 50 basis points is low. Strong GDP growth and a softer view on rising unemployment aren’t enough to stop the Fed from accelerating rate cuts. They see the risk balance shifting, aiming for maximum employment over just boosting GDP.

Besides a preference for tech stocks, Pasquariello is optimistic about the U.S. consumer discretionary sector. He believes that U.S. jobless claims and oil prices matter more than consumer confidence data right now.

When it comes to consumer discretionary stocks, Goldman is seeing solid demand from pure bulls, which stands in stark contrast to the massive sell-off by hedge funds.

This week, the People’s Bank of China took strong measures and cut rates across the board. Pasquariello highlights that the policy shift marks the start of a new trading cycle. He commends those savvy investors who anticipated this tactical rebound, pointing out that Goldman’s data shows China has seen buying for eight consecutive days. Chinese real estate stocks jumped 20% this week, so let’s see if this rebound has legs!

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