The stormy second quarter of 2024 (April 3, 2024)

Preface: This year's Easter happens to be the watershed between the first and second quarters. Around this watershed, the investment market has seen many changes, and I believe that volatility will be the theme of the global investment market in the second quarter......

U.S. Market Update

Last night, all three major U.S. stock indices declined: $Dow Jones Industrial Average(.DJI.US) fell nearly 500 points at one point, hitting a low of 39,051 points. The loss narrowed to about 400 points before closing, ending at 39,170 points; $NASDAQ Composite Index(.IXIC.US) also dropped over 250 points at one point, hitting a low of 16,137 points, before narrowing the loss to 156 points and closing at 16,240 points; S&P500 also fell nearly 40 points, closing at 5,203 points.

The U.S. stock market has always been the focal point of global investment. The current rally in U.S. stocks began in November 2023 and has lasted for half a year. Over the past six months, the upward momentum of U.S. stocks has been like a rocket. I have never been optimistic about this rally because it lacks economic support: the so-called controlled inflation is just the Federal Reserve's self-talk. Look at the rise in oil and gold prices over the past month, even cocoa futures have hit a record high. These increases are not driven by demand but by inflation.

The U.S. lacks long-term economic momentum, and there is no short-term liquidity either: the Federal Reserve's overnight reverse repo rate (ONRRP), which I have been monitoring, has dropped from $2.5 trillion to less than $500 billion. This data reflects the surplus liquidity in the U.S. market. Although $500 billion is still a considerable amount, it has fallen by 80% from its peak, leaving less and less idle capital for market entry. As stocks rise, prices become more expensive, requiring even more capital to push the market higher. The current situation in U.S. stocks is like a spacecraft detaching from its booster: the spacecraft may continue to soar for a while without the booster, but ultimately, it cannot escape gravity and will return to Earth.

Hong Kong Market Update

$Hang Seng Index(00HSI.HK) yesterday attempted to challenge the 17,000-point mark but failed. This morning, it opened almost flat. Unlike the decline in U.S. stocks last night, it seemed Hong Kong stocks had the strength to retest 17,000 points. However, the market trended lower, with the auto sector weakening in the afternoon, pushing the index below the 16,700 mark. It eventually closed at 16,725 points, down 206 points, with a turnover of $99.8 billion.

Strategy

Over the past month, everyone has finally noticed the trend in gold again. Those who follow me know that gold has been my recommended investment tool for years. Today, gold prices broke through the $2,300 mark for the first time during Asian trading hours. There are various theories about the reasons behind the rise in gold prices, with the mainstream explanation being geopolitical factors. But think about it: has the Middle East situation only become tense since March this year? At the end of last year, when issues arose in the Middle East, gold prices were around $2,000 per ounce. Why didn’t the market highlight the importance of gold back then?

Besides gold, crude oil prices have also risen significantly recently. Additionally, U.S. cocoa futures have more than doubled from around $4,000 at the beginning of the year to over $9,900. It’s worth noting that cocoa futures prices have fluctuated between $2,000 and $3,500 since 1980. This year’s breakout has broken a 40-year record. I don’t believe the rise in cocoa futures is due to geopolitical factors. If not, then why has cocoa futures surged over the past three months?

Another point: last night’s breaking news was the phone call between the leaders of China and the U.S. The announcements afterward seemed uneventful, but the key takeaway was the immediate arrangement for Janet Yellen to visit China. What could be so urgent that a country’s Treasury Secretary would rush to visit a nation perceived as economically weak? The U.S. announcement also mentioned that Antony Blinken would visit China later. The contours of great-power rivalry are becoming visible, but it still feels like seeing flowers through fog. What news could Yellen’s visit bring to the global investment market? Or will it just be another case of raised hopes followed by disappointment?

This article may seem unrelated to stock investing, but I believe today’s investment market is a blend of politics and economics. To understand the economy, one must view the market from multiple angles. I think the global investment environment in the second quarter will be unpredictable, with occasional strong winds or even tsunamis. So, short-term traders should travel light, while long-term investors should fasten their seatbelts.

With gold prices now at $2,300, I’ve started taking profits and reducing positions in high-leverage gold products like $FL2CSOPGOLD(07299.HK). Additionally, given the potential downside risk in U.S. stocks, I’ve reallocated all North American/global investments in my MPF. As for Hong Kong stocks, I’ll wait to see if $Hang Seng Index HSI.HK$ can break through the 17,200 mark this Friday. If it fails, Hong Kong stocks may soon retest the 16,200 support level.

Good luck to everyone.

(The above views represent my personal opinion. Any investment strategies provided in this article may not be suitable for everyone and should not be considered as an invitation or intention to buy or sell financial products. Securities prices can rise or fall and may even become worthless. Trading securities does not guarantee profits and may result in losses. Investors and clients should exercise caution and consider this as just one of many factors in their investment decisions.)