Traders charge into car makers. Bets of a potential short-term equity pullback intensify ahead of Fed meet
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Why investors are using car makers as a trading opportunity and car makers' shares are revving up?
US car assembly line workers have been on strike since Friday and walked off the job at Ford $Forward Industries(FORD.US$ , GM $General Motors(GM.US$, Stellantis $Stellantis NV(STLA.US$ - the company behind Jeep, Fiat, Citroen, Dodge, RAM, Alfa Romeo. United Auto Workers are striking for a 40% jump in their hourly rate, to receive a jump like their respective CEOs. The average assembly line employee earns US$17 - US$33 per hour.
- All in all, what you need to know is with about 146,000 auto workers on strike, and some models' supply will be limited to about 35 days supply, down from 65-85 days supply.
- The thinking is, there will not only less car supply, but that car makers might be forced to increase their prices, and that has benefited global car makers' shares such as Tesla $Tesla(TSLA.US$ which rose over 10% last week, Stellantis $Stellantis NV(STLA.US$ rose 5.6%, GM $General Motors(GM.US$ rose 3%, Ford $Ford Motor(F.US$ and VW $VOLVO(AB)(VOLVF.US$ rose 2.5%. It's also worth watching car maker ETFs such as iShares Self-Driving EV $Ishares Self-Driving Ev And Tech Etf(IDRV.US$
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The Fed decides on interest rates; so beware of a potential short-term equity pullback.
Institutional investors are increasingly protecting their portfolios in the event of a potential pullback in equities. The highest volume of global ETF transactions in the last 30 days has been in the SQQQ ETF $ProShares UltraPro Short QQQ ETF(SQQQ.US$, which seeks to make a profit when the QQQ falls. The ETF has received US$128 million in flows this month, that is double the volume of the QQQ, over the same time. This simply means, there are more short-term bears than bulls right now.
Although, we think US equities could shortly face pressure and take a haircut, if the Fed is more hawkish (aggressive), the potential pull-back might be capped. Meaning, you will likely see investors buying into dips, as the market is forward-looking, expecting interest rates to potentially be cut late next year, which in theory would support equities.
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What's on the line this week?
- Volatility will likely ramp because the Fed, the Bank of England, the Bank of Japan and central banks in Sweden, Switzerland and Norway will all decide on where to next, with interest rates.
- The major focus will be on the more resilient US economy, which could prompt the Fed on Wednesday to pencil in one more interest-rate hike this year and stay at the peak level next year for longer than previously expected. For investors this means, interest-rates sensitive tech stocks, real estate and consumer discretionary stocks could face a haircut. While the broader market, the S&P500 could succumb to pressure. Also be mindful that the most traded currency, the US dollar could extend its rally, and this may see commodity prices take a haircut.
Other ETFs to watch?
If the Fed is more hawkish and equities pull back; you could see profit-taking in the following ETFs, all of which have been the best performers YTD: GraniteShares 1.5 Long NVIDA ETF $GraniteShares 2x Long NVDA Daily ETF(NVDL.US$ (+360% YTD), MicroSector FANG $Diamondback Energy(FANG.US$ + $MicroSectors FANG+ Index 3X Leveraged ETN(FNGU.US$ (+300% YTD), GraniteShares 1.5x Long META Daily ETF $GraniteShares 2x Long META Daily ETF(FBL.US$ (+257%).
What else to watch this week?
- The OECD releases its interim economic outlook report on the global economy, on Tuesday.
- In Australia Chevron's LNG $Chevron(CVX.US$ facility resumed full production following a worker strike, which should provide a bit more supply certainty. This could result in investor's taking profits from oil and gas companies' shares that have run up.
- In Asia, distressed Chinese developer, Country Garden Holdings $COUNTRY GARDEN(02007.HK$ faces more tests including a vote on stretching out payment out of a local bond by three years.
Invest in your financial future today.
Happy Investing
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All investments carry risk and investors may suffer losses. Consider the FSG and other legal documents before deciding to use the services. The information is general in nature and has been prepared without considering your financial objectives, situation or needs. Consider the appropriateness of this information in light of your personal circumstances before making investment decisions.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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