To The Moon

Higher for longer Interest Rates

• The 10-year bond yield rose to 4.28% and appears to be on track to surpass the 2024 high of 4.327%.

• However, the S&P 500 has been immune to rates lately.

• CME Fedwatch suggests that there will be 3 rate cuts by the end of the year, but stickier inflation, as shown in the hotter-than-expected CPI and PPI, may further reduce the rate cut expectations to just 2 cuts by the end of the year.

Source: Tradingview

Source: CME Fedwatch

The Goldilocks VIX

• The VIX has settled into a 12-16 trading range since November 2023. Typically, when the S&P falls sharply, the VIX rises—and vice versa.

• A relatively low VIX trading range suggests that the S&P 500 may remain elevated or may be poised to go higher, as market participants are not panicky.

Source: Tradingview

Broadening Sector Rally

• Despite the Consumer Discretionary Sector, which accounts for 10% of the S&P 500 weight, falling 2.66% month-to-date in March, the S&P 500 still rose by 1.14% in March due to positive performance in other sectors.

• Furthermore, there's evidence of a widening market breadth. We've observed a broad-based rally in the S&P 500 throughout February and March. This suggests bullish sentiment, indicating that the S&P 500 rally has legs as more sectors are participating in the rally.

Undemanding Valuation:

The forward price-to-earnings (PE) ratio appears undemanding at 21.4x compared to the 24x forward PE ratio observed in early February.

Source: Bloomberg

Conclusion:

• The widening market breadth, low VIX, undemanding valuation, positive estimated earnings growth for the first quarter of 2024, AI optimism, and target price upgrades for the S&P 500 by various institutions all indicate that the rally in the S&P 500 has legs.

• These factors likely contribute to why market participants are disregarding the higher than longer rates narrative.

• If investors have missed out on the rally of their favorite stocks this year, they may consider the following investment strategy:

Step 1: Begin by investing in the S&P 500

• Invest in an S&P 500 ETF( $SPDR S&P 500 ETF Trust(SPY)$ , $Vanguard S&P 500 ETF(VOO)$ , $iShares Core S&P 500 ETF(IVV)$ ) or NASDAQ-100 ETF( $Invesco QQQ Trust-ETF(QQQ)$ ) initially to capture market returns. Many individual stocks may have experienced significant increases, making investors hesitant to invest.

Step 2: Subsequently, when their favorite stocks decrease in price, sell off the S&P 500 ETFs or NASDAQ-100 ETF to raise funds for investing in the favored stocks.

• This approach ensures that even if their favorite stocks do not decrease in price and investors still miss the chance to invest, the existing S&P 500 ETF position can still generate some market returns.