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Record US stocks – Is it time to raise cash levels?

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Question asked 25/01/2025

Record US stocks – Is it time to raise cash levels?

I am a Llong term member who values highly your opinions. The US markets are at record highs and the 10 year bond yield is at 4.615%. MM said yesterday that you are bullish US stocks with a 5-10 % pullback being a buying opportunity. With this in mind are you raising cash levels to take advantage of any pullback ? What make you so bullish on US stocks? thanks andrew

Answer

Thanks for the kind words, Andrew.

There are a number of reasons that MM is still retaining a bullish bias toward US stocks, albeit we are not ‘so bullish’ and would highlight that our stance is more muted than the last 2-years.

Macro: We have a new pro-business US president who is set to cut taxes and reduce red tape for many companies/industries. This should underpin better growth in the US than other jurisdictions.
Productivity: The US is more productive than Australia, and we think that gap will continue to grow. We have a productivity issue in Australia that is not being addressed. We’ve shown charts on this in the past.
Earnings: As of January 23, 2025, the U.S. earnings season for the fourth quarter of 2024 is underway, with early reports indicating a positive trend. According to FactSet, the estimated year-over-year earnings growth rate for the S&P 500 in Q4 2024 is 11.9%. If achieved, this would mark the highest earnings growth rate since Q4 2021.
Statistically: the S&P500 has rallied over ~20% for las two consecutive years and historically after such moves momentum usually takes the index under ~10% higher in the third year (75% probability).

However, as most subscribers know valuations are generally extended as momentum traders have reigned supreme over recent years plus President Trump is threatening tariffs which is causing concern of a potential trade war, something weighing heavily on parts of the ASX. Hence we anticipate plenty of volatility in 2025. especially on the stock/sector level but we aren’t yet moving to a more defensive stance, but watch this space, it is likely to unfold in the coming year. We currently hold ~12% cash in our International Equities Portfolio.

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US S&P500 Index

LAST UPDATED 23/01/2025 13:33

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