_{Table of Content}

Mid-Week Insights

💫 What’s happening on Wall Street?

❓️ The truth about Bonds when rates are cut?

🤏 Are small-cap stocks a buy?

📈 Stock Market Roadmap for 02.11.24

💻️ We aim to provide a free newsletter, but some things can’t be covered in detail. Coming soon are monthly livestreams to discuss how to grow as an investor and Swing Trader. We will test this out in the coming weeks. Join the waiting list via free Discord.

News

China Stocks Primed for Bullish Reopen After Upbeat Data

“The early read from Chinese New Year data, from holiday hotel sales to Macau visit numbers, points to bright spots in services-related industries,” said Linda Lam, head of equity advisory for North Asia at Union Bancaire Privee.

Read more here.

Rising services costs boost US producer inflation in January

"The Fed isn't losing the inflation fight, but they aren't winning either," said Christopher Rupkey, chief economist at FWDBONDS in New York. "The data are consistent that January is a problem month for inflation."

Read more here.

OpenAI is going to face an uphill battle if it takes on Google search

OpenAI is reportedly building its own search product to take on Google.

Bonds & Fixed Income

What happens to Bonds when rates are cut?

Assets in money-market funds pulled back slightly from record territory in the past week, holding roughly $6 trillion in assets as of Feb. 14, according to data from the Investment Company Institute.

When central banks cut interest rates, it often makes bond yields less attractive, leading investors to seek higher returns in alternative investment vehicles.

Here's how this dynamic typically works:

1. Yield Compression: Lower interest rates result in yield compression for bonds. As the coupon payments on existing bonds become relatively lower compared to newly issued bonds or other investment options, the overall attractiveness of bonds diminishes.

   • This can also relate to high-interest savings accounts. Many people don’t have money in the market due to the fact that you can still get a lot of return on minimal risk.

2. Search for Yield: Investors seeking higher returns may shift their capital from traditional fixed-income securities to higher-yielding assets such as dividend-paying stocks, real estate investment trusts (REITs), or riskier corporate bonds.

3. Equities and Riskier Assets: With lower interest rates, the appeal of equities often increases. Investors may be willing to take on more risk in pursuit of higher returns, particularly if the rate cut is part of a broader monetary policy aimed at stimulating economic growth.

4. Impact on Real Assets: Lower interest rates can drive investors towards tangible assets like real estate or commodities, as these assets may provide a hedge against inflation and offer potentially higher returns in a low-interest-rate environment.

Stocks might not continue going higher!

In theory, this is where investing in the market can get interesting. Traditionally, if people take their money out of fixed-income investments because interest payments are decreasing, they would immediately run into real estate or equities.

The difficult position in 2024 is that, yes, this bull run can absolutely continue. Still, based on the economic damage economically with an extremely high cost of living, things could move on a downtrend alongside interest rates.

Keep in mind I’m not telling you what will happen; I’m simply providing context so you understand the many situations that could occur.

Why high-yield bond ETFs may deliver 'surprise' outperformance in fixed income in 2024