US Stocks, Bonds, and Gold investment Tips After Fed’s First Rate Cut in 2024

MillionaireTiger
09-20

Hi, Tigers[Allin][Allin]

The Fed's rate cut decision has been released. In today’s article, we highlighted the impact of the rate cut on the market, collect the future path of fed from big banks. And listed the potential investment opportunities that investors should pay attention to.

1. The Fed's unexpected rate cut, market reaction and expert interpretation

On September 18, Eastern Time, the Fed opened a new round of easing cycle with a 50 bps rate cut and a dovish dot plot. Rate cuts are generally aimed at reducing borrowing costs and stimulating economic growth, especially when economic growth slows or there is a risk of recession. The Fed's 50 basis point rate cut is the largest single rate cut since the global financial crisis in 2008.

However, Powell's colleague reminded that "the speed of future rate cuts can be fast, slow, or even suspended", which made the market feel "chilled". This move quickly triggered a sharp reaction in major markets, with U.S. stocks $S&P 500(.SPX)$ , $NASDAQ(.IXIC)$ $DJIA(.DJI)$ closing down and U.S. bonds rising sharply.

After the announcement of the rate cut, the three major U.S. stock indexes jumped, with the $NASDAQ 100(NDX)$ rising more than 1%, the $S&P 500(.SPX)$ once setting a new record high, and small-cap stocks soaring nearly 2.5%.

U.S. Treasury bonds surged, and yields collectively fell. Rate cuts will reduce the yields of newly issued bonds, thereby increasing the prices of existing bonds, especially long-term bonds.

The $USD Index(USDindex.FOREX)$ sharply during the FOMC statement, but rebounded all the way during Powell's speech. U.S. Treasury yields also rebounded, with long-term yields rising 7 basis points that day.

Gold prices $Gold - main 2412(GCmain)$ soared to a record high of $2,600. On the one hand, as a non-interest-bearing asset, gold becomes more attractive when interest rates fall. On the other hand, it also shows that the market is cautious about the low interest rate environment and potential inflation risks.

At the same time, crude oil $WTI Crude Oil - main 2411(CLmain)$ prices showed a volatile trend, and then fell back when Powell spoke…

Several investment banks have stated that there will be more rounds of interest rate cuts in the future.

Read more>> Fed Rate Cut: How Wall Street Interprets the Development @Capital_Insights

2. US equities performance and Sectors Winners Aftre Fed Rate Cut

In an environment of interest rate cuts, the performance of the stock market is usually boosted. Historical data shows that the $S&P 500(.SPX)$ is generally rising, with only pessimistic performance in the two years after the Internet bubble in 2001 and the global financial crisis after 2007.

Read more>> Historical SPX. Returns Over 6M, 1Y & 2Y After The First Rate Cut

From the perspective of specific industries, the borrowing costs of enterprises have been reduced, which should theoretically help improve corporate profitability, especially those industries with high debt or interest rate sensitivity, such as real estate and utilities.

According to historical statistics, investors can focus on the following industries and sectors during the interest rate cut cycle: healthcare, finance, and communications services.

Read More>> 💰Fed Cuts & S&P 500 11 Sectors: A Historical Review

3. Investment opportunities in gold, and U.S. bonds

Read more>> Gold, Bonds, & Commodities Returns After Rate Cut

Bonds investments:

Rate cuts directly push up bond prices, especially medium- and long-term government bonds. Investment-grade corporate bonds also perform well in a rate cut environment because lower interest rates reduce corporate financing costs and improve their debt repayment ability. Historically, during the Fed's rate cut cycle, the 10-year U.S. Treasury yield usually shows a significant decline, which pushes up bond prices. Investors usually increase their allocation to the bond market in anticipation of rate cuts in order to seek stable returns.

If you are interested in U.S. bonds, you may consider ETFs：

  • $iShares 20+ Year Treasury Bond ETF(TLT)$ is an ETF that tracks the price and yield of long-term U.S. government bonds. It holds U.S. Treasury bonds with a maturity of more than 20 years, so it is very sensitive to interest rate changes. It is suitable for investors who want to seek longer-term bonds in the bond market.

  • $Vanguard Intermediate-Term Treasury Index ETF(VGIT)$ is a medium-term Treasury ETF that tracks the price and yield of medium-term U.S. Treasury bonds. Holding US Treasury bonds with maturities of 3 to 10 years has relatively small price fluctuations compared to long-term Treasury bonds. It is more suitable for investors who want to balance the risks of long-term and short-term Treasury bonds.

  • $Direxion Daily 20 Year Plus Treasury Bull 3x Shares(TMF)$ is a 3x leveraged ETF that tracks the price and yield of 20+ year US Treasury bonds. When the 20+ year US Treasury bond rises by 1%, TMF is expected to rise by about 3%.

Read more>>

Gold invests Tips:

As a safe-haven asset, gold tends to perform strongly after interest rate cuts. Interest rate cuts reduce the opportunity cost of holding gold, while also increasing expectations of inflation, which supports gold prices. During the interest rate cut cycle from 2008 to 2011, the price of gold rose from about $700 per ounce to nearly $1,900 per ounce, an increase of more than 170%. For other commodities, such as crude oil, their price trends depend more on global economic growth and supply and demand. Interest rate cuts may boost economic activity, thereby increasing demand for commodities such as oil.

The most direct way is to trade futures, $Vanguard Mega Cap ETF(MGC)$ $Gold - main 2412(GCmain)$ $USD Gold Futures - main 2410(GDUmain)$, currently Tiger App supports futures trading, but if you haven't opened futures trading, you might as well take a look at gold ETF investment

Gold ETF is an ETF that tracks the fluctuations of gold spot and futures. Buying this type of ETF is equivalent to buying gold spot itself. Generally, when gold in the spot market falls, the ETF that is long on gold will fall

  • $SPDR Gold Shares(GLD)$ This is one of the largest gold ETFs in the world, tracking the spot price of gold (London gold). GLD holds physical gold as an asset support, providing investors with a convenient way to invest in gold. It is the most liquid of all gold ETFs, with a huge daily trading volume, suitable for right-side trading.

  • $iShares Gold Trust(IAU)$ Similar to GLD, IAU is also an ETF that holds physical gold and aims to track changes in gold prices. It provides a low-cost, highly liquid gold investment option.

In addition to gold ETFs, there are gold mining ETFs---used to track a basket of gold mining companies (the market value-weighted average of gold mining companies)-such companies include both gold miners and gold processors.

Investing vs. Speculating—How Do You Balance the Two?
Take a look at your own portfolio—are your top performers driven by long-term investments, or were they more speculative plays? So, how do you divide your portfolio between these two approaches? What’s your balance?
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • phongy 45
    09-20
    phongy 45
    repeating too many times ...
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