Outperforming the U.S. stock market | Still buying crude oil and gold for hedging? Large funds have entered these sectors!

Core viewpoints:

1. The Israeli-Palestinian conflict does not significantly impact crude oil prices. The end of the November rate hike may present a buying opportunity for gold.
2. Value stocks are no longer attractive in a high-interest environment. After the adjustment of growth stocks, it may be time to gradually reduce holdings.
3. Disappointing results in the Q3 industrial reshoring sector, with hopes for a simultaneous outbreak with the software and services leaders in Q4.

01
The situation in Israel and Palestine has triggered a tumultuous autumn. Where are crude oil and gold headed?

As one crisis subsides, another emerges. The Russia-Ukraine conflict has descended into a quagmire, while intense clashes erupt between Palestine and Israel. These two major international events force the market to analyze them within the realm of capital markets. Prior to the Russia-Ukraine conflict, we witnessed a sharp rise in international oil prices, gold, and agricultural futures within a month. Looking at the current situation, will the market trend follow a similar pattern?

In fact, before the Israeli-Palestinian conflict began, international oil prices surged by about 10% in a month, thanks to the continuous production cuts by the OPEC+. However, this increase was completely wiped out within a week in October. There are rumors that the United States and Saudi Arabia have reached agreements that could lead to the self-destruction of oil-producing countries.

At the same time, since the outbreak of the Israeli-Palestinian conflict, oil prices have not experienced a significant rebound, as the supply-demand dynamics have not fundamentally changed. It is evident that the impact is not on the same scale as the Russia-Ukraine war. Furthermore, historically, oil prices have shown a negative correlation with the US dollar and US bond yields. Currently, both the US dollar and US bond yields have been at high levels for an extended period, which has also prevented oil prices from breaking through resistance levels.

Similarly, gold prices have also been suppressed by real interest rates on US bonds. The program points out that the rapid rise in medium to long-term US bond yields in recent months has exerted the greatest pressure on gold prices, and the scale of the Israeli-Palestinian conflict is also insufficient to stimulate gold prices.

However, compared to crude oil prices, financial commentator I believes that there may be better investment opportunities in gold. Especially as the rate hike approaches its end, and real interest rates are clearly peaking and falling, gold is expected to rise. This “quality” buying opportunity may come after the November interest rate meeting this year.

02
Value stocks are experiencing a rare collapse. What is happening and how to navigate through the fog to win in Q4?

Even Buffett’s beloved Coca-Cola has collapsed! Recently, several value stocks in the United States have seen rare declines, including consumer goods giant PG, the largest clean energy supplier NEE, and others. Behind them, the daily consumer goods index, non-daily consumer goods index, and utility index have also plummeted. What is going on?

The program summarized three main factors:

1. Recently, the total amount of consumer credit in the United States unexpectedly decreased, leading to an overall weakening of consumption. The rise in real interest rates has also put pressure on demand.
2. Bond yields have risen, making bonds a more attractive choice. As the dividend yield of value stocks is lower than bond rates, their attractiveness has decreased.
3. The unrealized losses in the U.S. banking sector continue to rise, causing concerns about financial stability. Nevertheless, in this context, growth stocks have performed no worse than value stocks, especially in industries related to artificial intelligence.

So, how should investors allocate their assets in this situation?

In a high-interest-rate environment, value stocks may indeed not be as appealing. Currently, factors such as weakening consumption, concerns about financial stability, and profit pressures still exist. However, in the short term, growth stocks are expected to outperform value stocks, especially leading companies related to the theme of artificial intelligence.

03
The quarterly reports are coming, which giants will be the first to usher in a rebound opportunity?

In the past Q3, the giants went through an adjustment period and faced a situation where valuations deviated from historical averages, especially with relatively poor performance from Apple (AAPL) and Microsoft (MSFT). In contrast to the weakness of the giants, the second and third-tier software leaders, such as SPLK, CRWD, ESTC, have stood out, and these high-quality targets have been repeatedly mentioned in “Outperforming US Stocks”.

Looking ahead to the Q4 quarter, I expect that the performance of giant companies is likely to improve, mainly benefiting from the resilience of the U.S. economy. Currently, the inventory in the real estate market has reached its lowest point in 40 years, a new round of real estate cycle is on the rise, industrial reshoring is accelerating, and the construction amount of U.S. industrial plants continues to hit new highs, which will further release profits.

Furthermore, the development of the artificial intelligence industry will also drive overall profit growth in the U.S. stock market. I am optimistic about the performance release of giants such as MSFT, GOOGL, TSLA.

On the other hand, I continue to emphasize that software services are still a top priority in Q4, especially companies related to AI. As the supply of AI chips gradually resolves, explosive growth from AI chips to applications usually takes some time, and it is expected to see a flourishing situation in about a year. This also means that leading software service companies will perform strongly during this period.

In addition, the reshoring sector in the industrial field is also a sector worth continuing to focus on. Recently, European and American countries have embraced the trend of reindustrialization, with a noticeable improvement in manufacturing employment in the United States. Therefore, focusing on the two core areas of automation equipment and capital expenditure expansion is recommended, especially ADSK and ANSS.

Reference article: WeChat Official Account “The Stock Intelligence Agency “