[Outlook] China Goes Big and Fuels More Stock Market Gains

The S&P 500 Has Only Done This 7 Times Before! China Goes Big and Fuels More Stock Market Gains The S&P 500 Has Only Done This 7 Times Before! By Donn Goodman September 29, 2024 Welcome back readers. Glad to have you. Last week we discussed the Fed’s new loosening monetary stance as they aggressively lowered the Fed overnight borrowing rate. If you have not had a chance to read or perhaps want to reread, [you can go here](. This week, we want to delve into China’s actions this past week as they made it apparent to the world that they needed to stimulate their economy, and they were aggressive about going well beyond what our own Federal Reserve put in action the week before. The effort by China is to revive growth in the country. Public sentiment had turned very negative, and many of China’s economic elite felt the need to pivot the country’s economic outlook and create a more consumer centered economy. Earlier this week, China unveiled stimulus measures aimed at boosting the world’s second largest economy. These measures included a cut to the interest rate charged on its one-year policy loans, a drop in minimum property down-payments, a cash handout, and a recapitalization plan for many of China’s largest banks. These actions immediately caught US investors’ attention and got them focused on the many Chinese stocks that are traded in the US market. Sentiment towards these stocks (and China) flipped in a matter of days. Most US investors, including hedge funds and institutions, had considered China “uninvestable” all year long. Suddenly, economists, analysts, and retail investors were coming out of the closet as China bulls. It is important to note that the Chinese market and their respective US stocks have underperformed the S&P 500 over the last decade. Despite this week’s rebound, the long-term trend of China remains lower. These trend changes take a long time to materialize. But for this week, many investors reaped short term profits by taking a position (or being early) in several of the larger China- US listed securities. There are a lot of investors worldwide who like to buy Chinese stocks. They have been patiently waiting for this week to eventually come. It reminds me of a song I know by one of the older rockers, Paul Rodgers, (who started Bad Company). As a solo artist, he produced a song called China Blue. You may have heard it. It has eerie guitar riffs. You may want to look it up on Spotify. The song reminds me of the many Chinese investors who like Chinese stocks but have been waiting a long time for them to do something. My heart will remain true to you while waiting for the green to turn to gold is symbolic, to me, of waiting for a return on my investment. China Blue Song by Paul Rodgers And will you wait for me as I cross the raging sea? And I'll wait for you, China Blue And will the stars looking down remember the sound Of your tears in the wind, China Blue? And though the seasons may change from the green to the gold But my heart will remain true to you. Save your smile for the sun and your sighs for the moon I'll save my love for you, China Blue At the end of the week, China had its best week in over a decade. We follow this up with a few charts that illustrate just how powerful this China rally was. See below: "Chinese equities on Tuesday saw the largest daily net buying since March 2021 - the second largest amount in the past 10 years." Hedge funds from around the world have been piling into Chinese equities over the past few days. I found the following illustration quite humorous and so typical of investing trends. Many investors don’t want to buy “cheap” stocks until they become more expensive and potentially “breakout”. Such was the case this week with the Chinese stock “Alibaba”. See below: The Baba example above does remind me of a relevant quote: “It's better to be late and right then it is to be early and wrong.”- Brian Shannon The China stimulus impact also fueled stock market gains throughout the world. Europe enjoyed one of its best days in two years. See below: Given the close ties of the US stock market to Chinese companies and the strong interest by many US investors to catch an early trend, the Chinese announcement was met with heavy US buying of all stocks. Clearly, US investors are of the opinion that any stimulus in China will undoubtedly benefit our own economy. The more than 10% rise in many Chinese stocks also aided the S&P 500 to close at a new all-time high on Friday. See charts below: The S&P 500 is trading with strong breadth. 82.7% of S&P 500 stocks are trading above their 50MA, the highest since late March. 79.9% are above their 200MA, the highest since early April. See chart below: With only one trading day left in September, the S&P 500 is up 1.6% for what is ostensibly the worst month of the year to invest. It is also on track for a five-month winning streak. It has now been up in eight of the first nine months of 2024 and 10 of the past 11 months. Years rarely reach September with only one negative month. This has only happened seven other times. See graph below: Which sectors are fueling the S&P 500 return for 2024? Use the links below to continue reading about: - Which sectors are fueling the S&P 500 - The Fundamentals driving the market higher - Six factors propelling earnings growth - Caution in earnings expectations - Why one analyst says we’ve reached Nirvana - The Big View bullets - Keith’s weekly market analysis video [Click here to continue to the FREE analysis]([Click here to continue to the PREMIUM analysis]() Best wishes for your trading, Donn Goodman Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral. The video analysis dives deeper. Risk On - [Markets are all in bull phases]() with both the S&P and the DOW hitting new all-time highs but showed some weakening momentum on the upside. Considering the seasonal patterns, we would see this as positive price action. Watch for a close beneath the 10-Day Moving Average for an indication of the rally failing.(+) - Volume patterns [remain positive]( across the board for all four indexes. (+) - Positively moving sectors outnumbered the negative ones with risk-on sectors, such as Consumer Discretionary and Semiconductors leading the charge and both Retail and Transportation were up, indicating positive economic conditions. (+) - Explosive moves in foreign equities, especially [China and Hong Kong](), and emerging markets in general. A positive for global equities in general. (+) - The [McClellan Oscillator]() still remains in positive territory and still working off some rich readings. The bigger picture shows the cumulative Advance-Decline line on new multi-year highs. (+) Use the links below to continue reading about: - Which sectors are fueling the S&P 500 - The Fundamentals driving the market higher - Six factors propelling earnings growth - Caution in earnings expectations - Why one analyst says we’ve reached Nirvana - The Big View bullets - Keith’s weekly market analysis video [Click here to continue to the FREE analysis and video.]([Click here to continue to the PREMIUM analysis and video](). Best wishes for your trading, Keith Schneider CEO MarketGauge P.S. When you’re ready, here are 3 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](), Rob Quinn. He can quickly guide you to the resources that you'd like best. - Get the foundational building blocks of many of our strategies from Mish's book, [Plant Your Money Tree: A Guide to Building Your Wealth](=), and accompanying bonus training. - [Review quick descriptions]( of our indicators, strategies, services and trading systems here. 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