04.06.2024 Issuer Call Redemption Notice

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Fed hikes done, Stocks time to shine

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· Typically, after the last rate hike, S&P 500 returns go up

· Nov-Dec Period historically proves to be strong for US equities

  • Magnificent 7 balloon popping?

Learnings from the past

Periods following the end of the tightening cycle frequently, meaning over 80% of the time, result in stock returns being positive in the months post the last Fed hike, as shown by data over the last 40 years.

Although the full effect of rate hikes takes time to feed into the real economy and the financial markets, resulting in weaker earnings growth due to consumers, who account for a good majority of all spending, getting squeezed. Equity valuations usually get a boost from the Fed’s dovish or less restrictive stance, as market participants start pricing in the effects of rate cuts on equities with more confidence.

A graph of a graph

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Source: J.P. Morgan Asset Management

Bulls look to be gearing up for a huge end-of-year rally.

The last two months of the year frequently turn out to be great for equities.

Despite October’s negative return, which marked the 3rd consecutive month of declines for the S&P 500, for the first time since the COVID-19 pandemic, an event with a relatively rare occurrence in the market.

This negative streak is on track to be broken in November-December, the strongest two-month return period on average.

The festive spirit and many discount campaigns, including Black Friday, allure consumers to spend more, lifting the economy and revenues for many public companies.

Further, on average, the last month of the year has the highest chance of positive monthly returns for the S&P 500 at 74%, according to historical data by LPL Research.

A graph of different colored bars

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Source: LPL Research

Potentially, lower long-term rates and a stable growth environment will serve as a tailwind of equities/

If we look at SPX average returns by months and extrapolate that for 2023 YTD, it’s clear that it has much room for growth, potentially finishing near its all-time high of 4800-ish, helped by what could turn out to be another major Christmas rally.

A graph of a graph showing the average calendar year

Description automatically generated with medium confidence

Source:GS GIR and GS Asset Management

The S&P 500 has been rallying lately due to better-than-expected macro data, including SLOOS numbers revealing that lending standards tightened at a slower rate than last quarter and softer CPI print that bolstered bets that the Fed had ended its hiking campaign.

Magnificent 7 balloon

However, one big caveat here is that most, if not all, of the gains in the S&P 500 come from AI-related stocks.

The market, especially its engine, the magnificent 7, appears to be quite expensive on a given where ten-year Treasuries yield is, despite its drop from 5% to 4.5% in the last few weeks.

The “big 7” trades at a jaw-dropping of close to 30x forward earnings, while the rest of the market is at 17x. In a historical context, given where rates are, the S&P 500 is slightly overvalued at 19x earnings vs its long-run average of 15x.

What is more, the concentration in the S&P 500 is tighter than ever. The “Big 7” adds up to nearly 29% of the S&P 500’s weight, while its top 2 contributors, Apple and Microsoft, account for over an eye-popping 15% of the whole index.

All in all, if the AI mania goes down, the S&P 500 will likely follow suit.

Investors can long the S&P 500 using our 3x US 500 , 5x US 500

Alternatively, they can short or hedge their long positions on the S&P 500 using our -3x US 500

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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In its June meeting the Fed announced it only sees one rate cut in 2024.
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In its June meeting the Fed announced it only sees one rate cut in 2024.

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