Has the best start to an election year since 1996, bubble or historic momentum?

But as the economist maintains, it is Santiago Ruiz Guiñazú in statements to Ambit, despite being at highs, it must be taken into account that the US economy will continue to support current stock levels. The analyst maintains that the balance sheet season reflected results in most cases “above expectations and the latest consumer price data was encouraging” that the Federal Reserve (Fed) could lower the interest rate.

Regarding the electoral contest, Ruiz Guiñazú recommends staying alert, as he once again foresees a strong polarization between Donald Trump and Joe Biden. “That, plus the increase in the fiscal deficit that the US is carrying out, plus the Fed’s decision regarding rates“These are issues that an investor must follow closely because inflation is still far from the 2% goal,” he says.

Bullish fever takes over Wall Street

However, it is worth noting that other important indices are also showing a strong rally. He Dow Jones Industrial Average It has climbed 5.7% so far this year, its best stretch since a 12.1% gain in 2021, when it continued to add 5.9% over the rest of the year. This index is on track for its best election-year performance during the first 100 days since 1996, when it rose 12.9% and then added another 11.6% for the rest of the year.

According to data from Dow Jones Market Data, since 1950, the Dow posts an average gain of 3.8% in the first 100 trading days of a year. When it has risen more than 5% in that period, it has had an average gain of 7.3% during the rest of the year. The median gain has been 6.2%, with the index advancing the rest of the year 85.3% of the time.

And according to Federico Victoriocofounder of Andean Investments (IA), it is a fact that the three most important Wall Street indices have been having a very good year, “even overriding the Fed’s monetary policy, which ended up being much more “hawkish” than many analysts imagined at the beginning. of year”.

What it alludes to Victorio is because US monetary authority is delaying the decision on an interest rate cut and yet, “the American market continues to grow“. The AI ​​strategist recalls that, on the other hand, it is also true that election years are usually quite “bullish ”, which results in some investors being a driver to add equity in their wallets. “Probably, from this, we can still see some upward movement in the indices throughout 2024,” he believes.

For his part, the Nasdaq Composite has risen 12.3% so far this year, following its performance in the first 100 days of last yearwhen it rose 21.3% and then added another 18.2% during the rest of the year, driven by a run led by stocks linked to the Artificial Intelligence (AI). The technology index is thus heading for its best performance in an election year during the first 100 days since 1996, when it rose 18.6% and then added another 3.6% during the rest of the year.

Since 1972, the Nasdaq has posted an average gain of 7.6% during the first 100 trading days of a year. When you have gained more than 10% in that period, has recorded an average gain of 10.8% during the rest of the year and a median advance of 11.2%. In that context, it has risen 76.2% of the time, including the last 12 times.

Artificial intelligence, the nineties and the relationship with the rally

And as he explains to this medium Noberto Sosa, director of IEB Group, by looking at the historical chart of the S&P500 of the last 90 yearsit is clearly analyzed that the index is at maximums in nominal terms and almost at maximums in real terms, that is, taking inflation into account.

“Which really creates vertigo to enter these values,” warns the strategist. However, according to the analysis of “fundamentals” from respected consultancies such as FactSeta potential upside is expected 12/18 months of 10%. The estimate is quite heterogeneous depending on the sector. Therefore, for the most conservative investment profiles, bland It does not suggest actions, given that returns of more than 5% with low volatility are achieved in short-duration fixed income instruments.

For “balanced” and “growth” profiles, Sosa maintains that the investor cannot not have shares. This is because, given the situation that the indices are at maximums, it suggests being “underweight” in your strategy, that is, with less exposure to a specific asset due to performance expectations, in this case stocks. “For example, if the investor tolerates up to 50% of stocks in his portfolio, it is a time to have less than that 50%,” warns Sosa.

Regarding whether Artificial Intelligence can be a bubble like that of Dotcoms in the 90s, the analyst assures that the market consensus continues to grow and believe “that is not like that“. Sosa explains that it is a true disruptive leap in productivity, where no one is clear how far it can go, but the issue is so important that it is part of the G20 agenda.

The expert indicates that global positions are different, both the United States and China tend to agree on promoting the phenomenon and working “ad hoc” on what is happening, each with its own institutional style. Europe has a different position, Sosa maintains, since it is more concerned with moving forward with regulations.

Also remember that, this year, one of the sectors that has evolved the best is the “utilities” (distribution of electricity, gas and water). And one of the reasons is due to the impact of AI in this sector, to improve its efficiency and profitability. Thus, the boom in AI is motivating a strong push by technology companies within the large capitalization and growth sector, which is supported by improvements in work productivity, so

This way, experts see great value in this segment of the American market, especially due to short-term catalysts, where expectations move in step with the Fed’s decisions and signals, while new data on inflation and economic activity from the United States are expected; since a decrease in the risk-free rate would encourage the valuations of those stocks whose cash flows are expected to be mostly distant in time, this being the case of these growth and large capitalization technology companies.

However, and as Victorio advises, beyond this euphoria of the American market, the investor must be prudent in terms of exposure to equity and consider, at least for now, “good quality assets and low volatility.” From IA they consider the best option for putting together portfolios mostly composed of fixed income and progressively adding variable income. ““Probably with a drop in rates we will begin to feel more comfortable and said portfolio will begin to rotate towards equities more aggressively.”he concludes.