When I examine the average movement of the S&P 500 index over the last 25 years, we are currently in such a time that "Sell in May goes away" is not a very valid rule. What is really valid is, after all, this is a statistic. Because it is based on real data. As of the beginning of August or mid-August, I can say that the market has generally entered a selling cycle for 25 years and spent August-September like this. As of the beginning of October, the buying cycle begins again. Therefore, in terms of periodicity, that is, if we put aside the interest rate cut, the FED's speech, and other geopolitical factors, we have already entered a period where the indexes can work with a little more selling pressure. In other words, I look at the average of a very long period like 25 years, and if the average of 25 years really draws a downward slope on the graph, this means that it is not something that happens every 3 years, every 5 years, or something like that. There is a certain factor there that happens almost every year.
What could this factor be? There is no election every year. There is no recession every year. Interest rates do not go up and down every year, nothing happens. But every year, funds balance their positions by the end of the year. After all, these guys will realize profits and receive bonuses. This is probably a situation related to it. There, it shifts positions a little bit, this is the first issue. The second issue, as you know, inflation in America has now become secondary. The issue that has become primary is employment and growth. In fact, there is something like this. When we look at the average of total non-farm employment created by the American economy in the first 6 months of the last year, the difference between that average and the most recently announced data indicates a meltdown of almost 50%. In other words, when we look at the average of non-farm employment and the most recently announced, there is a serious decline. What does this mean, the economy looks good in one way or another, it looks good and strong right now.
But it has been producing half of the employment it has produced for the last 6 months. This is actually partially equal to growth problems. But equals, as you know, in the mathematical equation, there is an approximate equal sign on top of equals, we are currently experiencing approximate equality, it has not been finalized yet. But most likely the most important issue we will talk about in the last quarter of 2024 due to employment and in the first half of 2025 will be this employment issue. Unemployment is natural and there will be growth as well. Since companies are not growing, they cannot create employment anyway. This is important, let's put it aside. Maybe this is not the first step of the interest rate cuts, but this issue will probably be the trigger for the next steps. Then the stock market will price it a little differently.
For now, there is a slight holiday atmosphere in stocks. Hooray, interest rates are going down, capital will be cheaper. Whenever the market wakes up that this is not because capital is getting cheaper, but because this is a problem, or if something like that comes out of Powell's speeches or other presidents' speeches, then they will definitely put some pressure on stocks and indices. We put that aside too. Another factor is; So should we start softening our stock portfolios from now on? Should we both reduce our positions and hedge or do something short on the downside? This is something that is completely up to the portfolio manager's desire and opinion. But what I see in the market is this; I don't see such a position change in ETFs yet. When I look at it, there is no clear process yet in terms of transition from growth stocks to value stocks. In other words, when we look at that growth divided by value ratio, there is no downward curve in favor of value, it goes back and forth there for now.
Therefore, the market is not pricing in something like a serious recession is coming, let's run away right now. But I think it will happen. Moreover, when we look at market breadth indicators, what percentage of stocks are overbought - oversold, 4-week high - low, and are still in the middle of those indicators. There is no excess, no extremity. Therefore, there is no need to rush on the stock side. Although the 25-year cycle is currently indicating sales, I will not seriously reduce the assets I have or enter into shorts at the moment. However, as I reach profits and reach figures that satisfy me, I can say that I have started to sell some of my stocks, especially those that are parallel to the index, i.e. those with high beta. Then I can always buy again. But I can say that when I entered into a loss, I started to melt the ones that were in profit beautifully, without wanting to enter into a loss, because all my balances were disrupted. But I said this for those who were carrying positions.
There are very selective stocks on the new purchase side. There are stocks that I know - see and even recently added to my portfolio, there were already stocks that I added positions to. But these are always stocks with such incredible growth potential and stocks related to new technologies. Here are issues such as energy storage. Especially in these Magnificent 7 stocks, I can say that I have reduced my stocks a little at the moment. These Magnificent 7s, which still tend to go up, are going up very fast and running ahead of the market. But they are the same when they are falling and in my opinion, these can fall very fast in periods when the market's tendency to run towards distant horizons has decreased a little. Here is the carry trade issue, as you know, a statement was made by Japan two weeks ago, a message was given about the interest rate hike for the upcoming period, we will do it again so that everyone can keep their feet.
These will happen, when the indexes fall in such periods, the Magnificent 7s fall faster or I will call their supporters, artificial intelligence, information technology etc. companies fall faster. That is why I am reducing my stocks on this side a little. I am not shorting, maybe when I see an opportunity, they can be put back in place. It is a bit complicated but even though I think we are approaching the end of the price range, I can do this, and in fact I am doing it, I can target movements in a certain margin at a low cost by buying upward option spreads on ABC stock. In this way, there is no stopper. Because I am already enduring as much loss as I am willing to from the beginning. Maybe stocks can be tried that way.
On the Euro - Dollar side, the European Central Bank reduced interest rates, the US did not. Under normal conditions, we would expect the parity to go down, but such a pricing did not happen. First of all, let me examine the reason for the recent movement in favor of the Euro. This movement was actually a very full-fledged movement and a multi-reasoned movement. The reason is that the expected interest rate cut from the FED until the end of the year is 100 basis points, which is priced in both futures and swaps in the market. The expected interest rate cut from the European Central Bank was 66 basis points for the end of the year. Now we need to think like this; You think someone will cut interest by 100 basis points, someone else will cut it by 60-70 points in such cases, especially since they are G7 currencies, the interest will lose more value relatively because when you look at it, of course the yield carried by the US Dollar is higher, the interest is higher but the melting in it will be greater in the process. Therefore, the market will shift to whose interest will be more advantageous in such a change, especially in these G7 currencies. In other words, this is the only explanation for the movement in favor of the Euro in Euro-Dollar, in my opinion. Now let's put this aside again.
Secondly, let's look at the movement of the parity in the last 1.5-2 years and also the movement of DXY. If I remember correctly, the dollar index is playing in a band of 100.5 below and 106.5 above. Let's translate this to the graph of the euro-dollar parity; it is 1.115 above and 1.065 below. It is playing in between. Now, before putting this aside, let's think about this. Let's say we are technicians and we have determined a band and the dollar index has come to the lower end of the band and the Euro - Dollar parity has come to the upper end, what should we generally think? The band is below, support above, resistance from there, we should expect the Euro - Dollar to turn down and the dollar index to turn up, also by looking at the conjuncture. Now we have taken this and put it aside.
I was saying that the heart of USDJPY does not beat from the BOJ, it beats from the FED. It is really the opposite right now, but after the BOJ showed that the FED will finally cut interest rates, it started completely in line with our expectations. From now on, both the FED will cut interest rates and the appeal of the Dollar will decrease, while on the other hand, the appeal of the Japanese Yen will increase because the interest rate will increase. I think that all upward movements in the Dollar - Yen parity from now on will be evaluated as a selling opportunity.
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