The focus this week has been on the Chinese stock market. After being called “uninvestable” for months and being the darling short trade for fund managers worldwide, Chinese stocks surged over 10% on news of a stimulus package. This massive, short squeeze caused by investors unwinding their heavy short positions had further reaching effects outside of China as well. The U.S. stock market felt the ripple effects of this move, most notably in materials and certain areas of the energy sector. Copper, which historically is heavily correlated to the Chinese stock market, surged higher showing their relationship is still very strong. With gold recently hitting new all-time highs, it would make sense that copper (which is also heavily correlated to gold) would follow closely behind. The heavy buying this week could be the catalyst for copper finally making it back to those former highs from 2008 and potentially breaking out of the multi-decade base that has formed in that time.
Now that September is ending, we can look at how stocks performed during what is typically one of the weakest periods of the year. Up nearly 4% on the month, sector rotation continued to fuel the bull market and reaffirmed our strategy of aggressively buying stocks that are showing relative performance against their peers and the underlying index. Although we are still below the former highs, the list of new cumulative highs (new highs minus new lows) has continued to rise, as fewer and fewer stocks have been hitting 52-week lows each week. This is why sector rotation is paramount during a bull market. Money continuously rotates into the stocks closer to the bottom of their price ranges, just above former support from stocks that have already broken out of their former price ranges. Stocks outperforming during this historically weak period is generally indicative of continued strength into the year end and we will look to capitalize on this strength until the trend breaks and the data shows otherwise.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The content is developed from sources believed to be providing accurate information.