Report Summary
The US equity market experienced a sharp shift in sentiment as weaker macroeconomic data raised concerns about a potential recession. Many believe the Federal Reserve missed an opportunity to cut rates last Wednesday, and the market now anticipates a 75 bps cut decision in the September meeting.
This shift in sentiment increased stock market volatility as investors sought protection by moving investments into smaller-cap stocks and less-risky assets. We expect this trend to continue into August, with investors finding value stocks attractive amidst slowing economic growth and maintaining a cautious stance in anticipation of the Fed’s decision and timing for rate cuts.
The inventory scars of the pandemic-era housing market in the US are continuing to fade. July housing data shows the market is becoming more buyer-friendly, with rising inventory levels and reductions in price cuts. Homes actively for sale grew by 3.6% in July 2024 compared to the same time last year, reaching a post-pandemic high. Additionally, the share of listings with price cuts reached 18.9%, the highest since October 2023. Although active listings haven’t yet returned to pre-pandemic levels, the gap is narrowing significantly. If this trend continues, we expect mortgage rates to fall to between 6.4% and 6.5% by the end of the year, potentially reaching 6.2% by the first quarter of 2025.
On the fixed-income front, recent economic data has made investors more hopeful that the Federal Reserve will cut interest rates in 2024 and 2025. This optimism is based on two key factors: a lower-than-expected July inflation rate (CPI) and signs of a weakening job market.
As a result, US Treasuries (government bonds) have become more attractive to investors, leading to a 2.2% increase in the benchmark bonds over the month. When investors buy more Treasuries, their prices go up, and their yields (the interest paid to investors) go down.
The increased demand for short-term Treasuries (like 2-year bonds) has caused the yield curve to steepen. This means the difference between the yields on short-term bonds (2-year) and long-term bonds (10-year) has become smaller, with the gap narrowing to 21 basis points, the smallest since January 2024. A steepening yield curve often indicates expectations of economic improvement or changes in monetary policy.
Stocks
In July, the S&P 500 rose by 1.21%, the NASDAQ 100 fell by 1.51%, and the Dow Jones Industrial Average (DJIA) increased by 4.5%.
Our major holdings, including JP Morgan, Apple, Nvidia, Microsoft, Alphabet, and Meta, which performed exceptionally well in the first half of the year, experienced a pullback. Despite strong fundamentals, these stocks declined as investors shifted their focus to smaller-cap stocks. Consequently, our stock portfolio saw a downturn, resulting in a negative return of 5.75% for July.
We added Visa to our portfolio this month, betting on a continued global shift from cash to digital payments. With a projected compound annual growth rate (CAGR) of 9.52% from 2024 to 2028, the number of processed transactions is expected to rise, and global commerce growth will boost total transaction volumes. As the largest payment processor, Visa is well-positioned to benefit from this trend. We remain committed to diversifying our holdings, balancing risks, and strengthening our portfolio across various industries.
Some companies in our portfolio have released their second-quarter earnings, and most, including ASML, Allison Transmission, JP Morgan, and Microsoft, exceeded market estimates.
We anticipate a short-term liquidity squeeze and increased sell-offs of large-cap stocks as investors seek safety. While we do not expect this trend to persist in the medium term, we are cautious about taking on additional risks amid heightened stock market volatility, which has reached its highest level since March 2023. We will increase our hedges against potential market sell-offs to mitigate these risks, ensuring greater stability and resilience in our investments.
Real Estate
In July 2024, the Rise Real Estate Portfolio returned 1.18%. Despite decreasing mortgage rates and reducing prices, the portfolio’s underlying assets outperformed expectations. This strong performance highlights the effectiveness of our investment strategies and reaffirms that real estate remains an excellent asset for generating solid returns for our investors.
In the long run, we anticipate the real estate market will become more consumer-friendly as we expect the 30-year mortgage rate to decrease to 6.4%-6.5%. We plan to leverage this opportunity by acquiring additional assets to expand our portfolio, whilst yielding consistent returns for the users. Our pattern of consistent real estate returns is a testament to the approach we had taken in selecting our real estate assets and we are pleased with this consistency as we expect our real estate portfolio to keep providing attractive returns.
Fixed Income
In contrast to the turbulence in the broader market, our Rise Fixed Income portfolio maintained its resilience, generating a return of 0.83% for July 2024. Our fixed-income strategy has proven effective and reliable, delivering our investors steady returns and passive income.
Treasury yields dropped 4.20% from 4.6% last week, nearing their lowest point of the year. Following the cooling inflation data released in the last week of July, this decline reflects market confidence that the Fed will make its first rate cut in September, with possibly two more cuts before year-end.
Rise is committed to helping you achieve your financial goals through thorough analysis and careful selection of investment opportunities.