Global stock markets are likely to experience a wide boost this week – not just the mega-cap tech stocks – as the US Federal Reserve is expected to pause interest rate hikes, says the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The bullish analysis from Nigel Green of deVere Group comes as investors worldwide wait for the latest inflation data on Tuesday when the consumer price index report for the world’s largest economy is released. On Wednesday, the US central bank will issue its latest monetary policy decision.
He says: “Mega cap tech stocks – namely Apple, Microsoft, Nvidia, Amazon, Meta, Tesla and Alphabet – have made up around 90% of gains on Walls Street’s S&P 500 this year.
“But we expect that other sectors which have been outperformed so far in 2023 are likely to get a boost should the Fed, as we anticipate, pause rate hikes this week.”
The deVere CEO continues: “Despite a stubbornly robust labour market and still too-sticky inflation, the markets now expect the world’s most influential central bank to pause its interest hike agenda this month.
“This will firmly signal that progress is being made in the battle to cool inflation, and this will buoy investors across the board, finally providing a boost to sectors which have been unloved so far this year.”
Last week, Nigel Green warned investors against exclusively buying into the hype of the tech titans, or so-called Magnificent Seven.
“The volume is getting louder, and the frenzy is reaching fever pitch. This hype is dangerous as it could lead investors to assume that these stocks are a silver bullet to build long-term wealth – and they are not, at least not on their own,” he noted.
“While I believe that exposure to these mega-cap tech stocks should be part of almost every investor’s portfolio, as they have robust fundamentals and are future-focused, especially in AI, they should not be exclusive.”
Easing inflation – as would be indicated by a Fed pause this week – would, says the CEO, stimulate a “wider global stock market rally” that would be “positive across a broad sweep of asset classes, sectors and regions.”
Diversification, as Nigel Green stresses, remains investors’ best tool for long-term financial success. As a strategy, it has been proven to reduce risk, smooth-out volatility, exploit differing market conditions, maximise long-term returns and protect against unforeseen external events.
The comments about a fresh rally come as stocks rose just enough last Thursday for Wall Street to run into a new bull market as the S&P 500 keeps rallying off its low from last autumn.
The index rose 0.6% to carry it 20% above a bottom hit in October. This means Wall Street’s main measure has climbed out of a challenging bear market, which saw it drop 25.4% over roughly nine months.
Meanwhile, the Dow Jones Industrial Average added 168 points or 0.5%. The Nasdaq composite, meanwhile, led the market with a 1% rise.
He concludes: “Investors should be speaking to an advisor about the possibility of an opportunity-packed new rally if the Fed, as is expected, pauses rate hikes this week.”