Bear Market Enters Longer Than Average Territory And Interest Rates Put Breaks On Housing Market

TL;DR

• The current bear market is now officially longer than average, with it now being over a month since the average of 9.6 months was surpassed
• Property values are holding up ok so far, but transaction numbers have plummeted, as homeowners are locked into existing mortgages due to major increases in interest rates
• Much of the short-term market movement is likely to be sentiment driven, which is where our Forbes Kit shines
• Top weekly and monthly trades

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We’re feeling optimistic today. We’ve had a belly full of Turkey and pumpkin pie, and spent just enough time with the family to feel all warm and fuzzy, without crossing over into “I can’t wait to get out of here” mode.

So with that in mind, let’s talk about the bear market.

Yes, we’re still in one. Now that might not seem too optimistic, but there’s some good news. The current bear market has now been going on for around ten and a half months. That’s longer than the average bear market, which lasts for 9.6 months.

The longest ever continuous bear market went for a grand total of 20 months. So while this could end up being the longest ever, there’s also a good chance that we’ve got less time ahead of us than we do behind us.

The economic backdrop seems to match this (admittedly pretty simple) projection. Inflation is starting to come back down, economic growth is remaining surprisingly stable and companies are focusing on running more efficiently.

That efficiency in the form of cutbacks and layoffs makes for grim headlines, but from an operations standpoint it generally leaves companies in a better position to improve the stock price. It bolsters a company’s bottom line in the short term which generally makes shareholders pretty happy. With that said, they need to be careful about trimming too hard and hampering their future growth prospects.

Who knows, maybe by next Turkey Day we’ll be running with the bulls again.

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We’ve not got quite as much optimism around the housing market, at least in the short term. Again, we don’t have a crystal ball, but the Fed’s ongoing raising of interest rates has slammed the brakes on the real estate market and that’s likely to continue for some time yet. New mortgage applications are down 88% from this time last year.

And that’s part of the plan. The Fed needs to slow down economic growth in order to bring down inflation, and halting wealth from property growth is one of the best ways to do that.

Right now, even households who’ve enjoyed capital appreciation in their properties aren’t able to unlock that in most cases. While they’re net worth may have increased on paper, they’re not able to refinance their mortgage and spend more money on a more expensive property, because new mortgage rates are so much higher than existing ones.

The property market doesn’t move as quickly as the stock market. That can be positive, as it’s generally not subject to the same levels of volatility. On the flipside though, it can mean a recovery is more drawn out.

One of the main reasons for that is because stock markets are forward looking. When the Fed eventually starts to reverse their current interest rate policy, stocks are likely to respond positively. This will be based on the current rate cut, but also expectations of future cuts.

It’s not the same with property. Even if there is a clear expectation that mortgage rates will be coming down in six months’ time, homeowners looking to refinance won’t be able to benefit from those cuts until they’ve actually taken place.

This week’s top theme from Q.ai

Due to our relationship with Forbes, we’ve got access to intel that no other investment platform has. As one of the largest business, finance and lifestyle sites in the world, there’s a huge level of data driven from the platform every single day.

We use the power of AI to analyze this data and glean insights on what’s popular and what public sentiment is on all sorts of different issues and market segments. This helps improve the accuracy of our AI predictions, as well as using sentiment analysis to help select the investment universe.

The reason this is important is because over short timeframes, sentiment is a huge driver on investment performance. Fundamentals such as revenue, profit and earnings per share often win out over the very long term, but over the course days, months, and even years, it’s short term news can make a stock crash or soar.

All of this is packaged into our Forbes Kit. The AI finds the companies which have the most positive news coverage to narrow down the options for investment, and it then predicts which of these are likely to perform the best in the coming week on a risk adjusted basis.

The portfolio is automatically rebalanced every week, to take into the account the latest news and information.

Top trade ideas

Here are some of the best ideas our AI systems are recommending for the next week and month.

Nasdaq Inc (NDAQ) – The tech index’s parent company is one of our Top Buys for next week with an A rating in our Quality Value and a B in Low Momentum Volatility. Revenue is up 3.9% over the past 12 months.

Shake Shack (SHAK) – The fast food chain is our Top Short for next week with our AI rating them an F in Quality Value and a B in Low Momentum Volatility. Earnings per share was -$0.59 in the 12 months to the end of September.

Avis Budget Group (CAR) – The car rental company is one of our Top Buys for next month with an A rating in our Growth and Technicals factors. Revenue has increased 45.6% in the 12 months to September 30.

Axsome Therapeutics (AXSM) – The pharmaceutical company is one of our Top Shorts for next month with our AI rating them an F in Technicals and Quality Value. Earnings per share was -$4.08 in the 12 months to September 30.

Our AI’s Top ETF trade for the next month is to invest in T-Bills, large cap Chinese stocks and Industrials and short corporate bonds and Asian-Pacific stocks more broadly. Top Buys are the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, the iShares China Large-Cap ETF and the Vanguard Industrials ETF. Top Shorts are the SPDR Bloomberg Barclays Investment Grade Floating Rate ETF and the Vanguard FTSE Pacific ETF.

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