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UPDATE: Mid-Year Market Outcome
The consistency in the analysis means that the economy is showing signs of stability, and when investors have stability, then we have better predictability.
24Hour Shareholders —
At the start of this calendar year, traders hedged on how three ETFs would end by June 30th. As documented on a January post on 24Hour Journal, the mid-year market prediction was for SPY 0.00%↑ to either hit a price of $385 or $400, for DIA 0.00%↑ to decrease to $330 or increase to $333, and there was a mutual consensus for QQQ 0.00%↑ to hit a target of $280.
SPY is the SPDR S&P 500 ETF Trust sponsored by State Street Global and is the oldest and largest ETF available. Total assets under management is $412 billion and the ETF tracks the S&P 500 index. The top ten holdings include Apple, Microsoft, Amazon, Nvidia, Alphabet Class A and C, Tesla, Meta, Berkshire Hathaway, and United Health Group.
DIA is the SPDR Dow Jones Industrial Average ETF sponsored by State Street Global. Total assets under management is $29 billion and the ETF tracks the Dow Jones Industrial Average. The top ten holdings include United Health Group, Microsoft, Goldman Sachs, Home Depot, McDonalds, Caterpillar, Visa, Amgen, Salesforce, and Boeing.
QQQ is the Invesco QQQ Trust Series ETF sponsored by Invesco. Total assets under management is $197 billion and the ETF tracks the Nasdaq 100. The top ten holdings include Microsoft, Apple, Amazon, Nvidia, Meta, Tesla, Alphabet Class A and C, Broadcom, and PepsiCo.
Return of the Tech Bulls
Inflation in the United States is still elevated at 4.0% year-over-year, and it does seem to be flattening. Economists are still holding to a very modest GDP growth at the end of this calendar year of 0.4%. At the beginning of the year, economists projected a 0.5% GDP growth by end of the year. The consistency in the analysis means that the economy is showing signs of stability, and when investors have stability, then we have better predictability.
SPY ETF finished the first half of the year at $443 (as of market close today) and the technology stocks have been leading this bullish trend. Traders who predicted an ongoing sluggishness in the US economy have been badly burned (those who hedged towards a $385 price), and traders who were optimistic about the US economic recovery were rewarded handsomely.
Alternatively, the industrial heavy Dow Jones Index which includes not only tech stocks but also finance, healthcare, and consumer discretionary, among others, has been a roller coaster. DIA ETF ended today’s market at $343, an increase of $13 year-to-date. DIA has not enjoyed the same rocket ride as SPY, but traders who cleverly played the business cycles had at least two big opportunities to make money on DIA 0.00%↑ .
Learn about business cycles, index cycles, economic cycles, and market cycles by reading The Market Cycles of Your Lifetime.
The bullish trend of the first half of the year is all about the tech stocks, and specifically the AI revolution. Companies like Nvidia NVDA 0.00%↑, Tesla TSLA 0.00%↑, Microsoft MSFT 0.00%↑, and several others who have been keen on developing generative AI have raised the tides that have lifted all boats. QQQ ETF started January with a price of $270 and has blown away expectations by ending the first half of the year at $369. Remember in January, traders mutually agreed that $280 was the target price point for QQQ 0.00%↑.
What to Expect in the Second Half of 2023
As we did in January, to understand where traders are hedging by December 2023 we look towards the options market for SPY, DIA, and QQQ. Ironically, there is hardly any activity for traders hedging on these ETFs in December, meaning the volume of the options market is little to none.
The inactivity in the December options market means that there is not enough information yet to guide on best trading strategies to make money. So, instead of looking six months down the road, let’s consider the end of quarter three on September 30th.
The one common theme about SPY, DIA, and QQQ’s option volume is there are more hedges towards prices that are lower than the current levels. But, there is no one definitive price where there is a lot of volume. For instance, when reviewing SPY’s option volume that expire on Friday, September 29, there are more bearish hedges than there are bullish.
There is more economic data to evaluate monthly, and there will naturally be one earnings season starting with the big banks in mid-to-late July to understand the business activity that occurred from April to June. The Summer trading season is often not as volatile as this is a time when many traders are enjoying vacations or time with their families. I suspect that at the beginning of September, there will be more activity and insight on how 2023 will end.
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