News and analysis

Iran's massive missile strike on Israel spoiled the investing sentiment across the world on the very first trading day of October. The MSCI World index, tracking the performance of large and mid-cap equities across 23 developed countries, lost nearly 1.25% after hitting its historical high at 3739.31 last Friday. Tech-heavy Nasdaq 100 futures of Wall Street fully wasted last week's gains, sliding from rather comfortable levels above 20,000 to the middle zone of a lower 19,000 big figure. The S&P 500 broad market barometer dropped below 5,700. The crowd may become more cautious while Middle East tensions are clearly escalating. However, it may feel already on the next step that the proper way to hedge additional risks lies in hiding even more cash into leading stock assets instead of U.S. Dollars or Euros, especially as yields of Treasury bills and German bunds are going further down very fast in sync with lower central banks' interest rates.

Military standoff between Arabs and Jews can last for years, trying to enlist other sides into the conflict. This only undermines the U.S. government influence in the region, as well as the commonly cited "international order based on rules", which negatively affects reserve currencies' system. Meanwhile, the capitalization of major transnational corporations may even benefit from pure investors' desperation mixed with instinctive reactions. If Apple and some high-rating chip stocks lost 3% to 4% of its value in one evening on October 1 then Google, being the search and cloud giant far away from sales of any physical items, is still on its feet, even gaining 0.7% during the day, while social networks prince Meta used the stressful moment to soar to its new all-time milestone above $583 per share. The Facebook, Instagram and WhatsApp owners' one-year change in value is more than 85%.

We believe that such trends will continue strongly in October, and so adding more positions in market indexes and leading techs, be it on their current highs or dips, is an appropriate stance. Besides, we would like to draw your kind attention to a fresh analyst note from The Bank of America mentioning in particular: when the S&P 500 was up in September, the rest of the same year has had even stronger returns with the index being "up 67% of the time on an average return of 1.62% (1.54% median) in October and up 79% of the time with an average return of 5.08% (5.81% median) in 4Q", supporting the idea of the 6,000 target area for the S&P 500 into year-end.

September is typically the weakest month of the year for the S&P 500, but this time the index added 2% to reach a year-to-date gain of 20.81%, which may set the stage "for a potentially robust fourth quarter", according to the BofA's bets. Its investigation said, when the S&P 500 statistically was up between 15% and 25% through the first three quarters of a year then the S&P 500 later would have an average last quarter gain around 4.4%. In 2024, this would lead to potential goals between 5,930 and 6,185. Again, any solid gains during a presidential election year "bodes well the S&P 500", with "a positive Q4 is seen 89% of the time", while an average return is 4.98%".

With more eyes are going to watch the U.S. September's jobs report, scheduled for this Friday, the Federal Reserve's head Jerome Powell reiterated that the open market committee doesn't feel "like it’s in a hurry to cut rates quickly", so that further rate cuts may "play out over time". His latest statement was made before the Middle East new tensions, which could accelerate the central bankers' dovish mood to offset growing risks for the global economy. Yet, even a smaller 0.25% policy change in early November, compared to the large 0.5% step down two weeks ago, looks to be an adequate response of monetary authorities to expectations of the investment community on improving borrowing conditions in nearest months.

Ontology (ONT) has declined by 2.8% this week, falling to $0.1990, as it pulls back from the strong resistance level at $0.2000. Similarly, Bitcoin (BTC) is down by the same percentage, dropping to $63,760. ONT is attempting to break through this resistance for the second time in the last six weeks, and this time, the attempt could prove successful.

The broader cryptocurrency market experienced its best September on record, and historically, October tends to be one of the strongest months for the market. With this favourable backdrop, ONT could break through the $0.2000 resistance level and advance towards $0.3000.

The British Pound is clearly overebought following a 2.0% rise to 1.33700 in September. By contrast, the EURUSD gained just 0.4% over the past month. Although the Cable has broken through the uptrend resistance, this appears to be a temporary move. Over the past six months, the pound has been held within an ascending channel, and it seems likely that this pattern will continue.

I plan to open a short position at 1.33500-1.34000, aiming for a trendline support at 1.31000-1.31500. This is where the pound could be heading by mid-November. A stop loss will be set at 1.36000.

China's working to speed up stimulus, premier Li Qiang says. Beijing authorities are trying their best for the demand side and domestic consumption to come back. Besides lowering borrowing costs for businesses and consumer credits since 2021, unlike Western central banks, the People's Bank of China (PBoC) also coordinates its efforts to boost capital market funding and easing home-buying rules in megacities like Shanghai and Shenzhen. The integrated approach not only helps to revive the country's building industry but also may free up some householders' money to spend more for other purposes. As a result, as soon as Shanghai's property index bounced off its former trend, hopes for a holistic ending of Chinese economic slowdown quickly led to China's stock indices' rebound and to great China's ADRs leap on Wall Street.

Therefore, long-neglected shares of Alibaba Group BABA), JD.com (JD), Baidu (BIDU) and PDD Holdings (PDD) were eventually cleared for take off. In particular, Alibaba soared by more than 30% for the last 8 trading sessions, including +3% on today's opening, yet it has a couple of extra hundred percentage points in reserve for the case this high demand of Chinese stock would retain. Those China businesses are the top gainers on Wall Street in the second half of September, even overtaking big techs, consumer discretionary or U.S. rooted industrial stocks on a turn. Therefore, I am going to make at least 5% to 7% room for them in my portfolio. No more than that at the moment, as risks with Asian firms are also high, at least because of possible trade wars with the next White House administration if Republicans will sit there. Democrats are also not kind to the supply of technology solutions to China. However, E-commerce platforms that are focusing on non-U.S. sales should be least affected by any kind of cross-border or tax barriers.

What I also like is that Alibaba CEOs said last week that they will accelerate the AI push by releasing new open source text-to-video models. They are trying to compete in the generative AI area with US-rooted tech monsters. Alibaba said it is launching a hybrid model with both proprietary and open-source development to broaden its AI product range and to compete on the playground of giant players like OpenAI, a close partner of Microsoft, using from 0.5 to 72 billion parameters to determine an AI model's capability, also supporting for over 29 languages. Baidu is actually a Chinese "version" of Google, which looks like another promising direction for investments. The exact price targets cannot be determined yet, but this can be dealt with later when the deals with Chinese ADRs would start to bring at least some substantial profit... as I hope.

Chinese auto manufacturers like Nio (NIO) or Li Auto (LI), as well as casino operators like Wynn Resorts (WYNN) or Las Vegas Sands (LVS), which have a large presence in Chinese Macau, may also deserve some attention, yet give me more doubts in terms of continuous financial injection by the market community. I think I'll wait with this kind of stocks and think twice before putting my money in the segments.