Bond investors will do 'very well' in rest of 2024: Strategist
All eyes are on the Federal Reserve as it gears up for its first interest rate cut at its September meeting. Miller Tabak managing director and equity strategist Matt Maley joins Catalysts to discuss how the current state of the market and how investors can best prepare for the Fed's rate easing cycle. Maley notes that the tech sector, which has led the charge on the market's record gains this year, is now under pressure. "The biggest narrative in the last six to eight weeks has been that the earnings from the AI phenomenon are not going to broaden out to the degree that people were hoping for this time last year or even six months ago," he explains. He highlights that investors are disappointed in names like Nvidia (NVDA) as they seek real returns on their AI plays. However, Maley says that despite the tech sector "lagging" in the second half of August, "It only retraced about two-thirds of its summer decline while the S&P (^GSPC) recovered all of its declines." He argues, "you need to have the tech group either rising even if it's lagging for you to see any kind of rotation. If it goes down and the major indices (^DJI, ^IXIC, ^GSPC) go down, people tend to pull their money out and rotate into cash... So this tech group is going to still be very, very important over the next couple of weeks, and really for the rest of the year." On the fixed-income side, Maley believes that bond yields (^TYX, ^TNX, ^FVX) are "oversold," which indicates that bond prices are being overbought: "We broke below that 3.8% key support level on the ten-year note. We've seen the two-year note break down in a significant way, well below any kind of trend line, and it's made a lower high and a lower low. On the yield side, that's going down. That means prices are going up, and I think that that key change in trend for the bond market means that bond investors are going to do very well over the rest of this year, again, on a near-term basis." He explains that the bond market could be in store for a pullback as the Federal Reserve cuts rates. However, he believes the pullback won't last too long because ongoing geopolitical tensions will likely encourage investors to choose safer plays. Maley adds, "There's no question that our economy, even if we're not going into a recession, it is slowing down. That bodes well for the bond market." For more expert insight and the latest market action, click here to watch this full episode of Catalysts. This post was written by Melanie Riehl
