The market is at an interesting point right now. Despite the good economic conditions and companies still making profits, there are some challenges in making trades that could be considered heroic. Here are a few reasons why it’s a tough trade to make at the moment:
Firstly, year-to-date gains have been significant, with most assets up by a good margin. Fund managers have already seen gains of around 15%. The question is, is it worth risking that in August? One alternative could be to invest in a five-month t-bill for a conservative 2% return and wait until early 2025 to reassess the situation.
Secondly, liquidity is becoming scarce. With the rise of algorithmic trading, leverage, and overcrowding in the market, there is a risk that when the music stops, there won’t be enough buyers left. This can lead to unusually large movements in major stocks and bonds.
Thirdly, the seasonal trends in August and September are challenging. Even if you don’t want to wait until the end of the year, taking a break and watching the Olympics might be a wise move.
Lastly, the aggressive pricing by the Federal Reserve is also a factor to consider. While it may seem like a good idea for the Fed to cut interest rates by 50 basis points in the upcoming meetings, there is a possibility that they might not. Recent comments from officials indicate that the Fed might be more cautious than the market expects.
Overall, while a short-term bounce in the market next week is possible as things settle down after a turbulent week, it’s unlikely that real money will be pouring into the market. Keep an eye on the Nikkei at the start of the week for a better indication of market sentiment.