The TPP strategy of the month

September in review: US stocks recovered from an early month sell-off, while Europe underperformed.

European stock markets underperformed compared to their US and Chinese counterparts in September, primarily due to a lack of local catalysts and a dependence on global events. However, luxury consumer stocks excelled, driven by optimism surrounding a swift recovery in Chinese demand.

September proved to be a pivotal month for global stock markets as the Federal Reserve began its easing cycle with a significant 0.5% rate cut, while China launched the largest stimulus package ever, further enhancing risk-on sentiment in the last week of the month.

In Europe, the European Central Bank (ECB) implemented its second rate cut of the year, meeting market expectations.

In line with these global developments, major European benchmarks posted strong gains last week, with both the Euro Stoxx 600 and the DAX reaching new highs on Friday.

However, indices ended the month fairly mixed: The FTSE led the falls by dropping just over 1.5%, the Pan-Euro Stoxx 600 declined by 0.28%, the French CAC 40 fell by 0.14%, yet the DAX in Germany broke the gloom by rising 2.08%,

In the UK, consumer confidence has collapsed over recent months causing a downturn in economic sentiment.

GfK's Consumer Confidence Barometer, a long-running measure of how consumers feel about their finances and the economy, has tumbled further into negative territory since the end of August.

The index had been recovering after the years of the Covid pandemic, rising prices and higher interest rates had dented the outlook for many.

GfK said the latest measure did not provide "encouraging news" for the UK's new government, while some economists have linked the drop to Labour's downbeat rhetoric about the Budget.

Sir Keir Starmer has said the Budget on 30 October will be "painful", with some taxes set to rise and spending cuts. If he was looking to calm the markets, he probably should have chosen a more upbeat tone.

Talk of tax rises and increased employment rights has "dented confidence in the environment for business in the UK", according to the Institute of Directors business group.

GfK, a market research company, said there were "major corrections" - or double-digit falls - for consumers' perception of the general economic situation, as well as how likely they were to make big purchases.

Latest figures also showed the UK economy failed to grow in July, a blow for the new government which has put boosting the economy as one of its key priorities. It’s too early to judge, or even blame Labour for the current stall, but perhaps they could learn something from the Americans when it comes to the consumer. Telling those who spend within the UK economy that things are about to get ‘painful’ is not a great way to promote growth.

On the back of a relatively poor month for stocks, how did TPP’s European based strategies perform?

Our most popular trading strategy Cambridge Futures, which focuses on the falling FTSE, managed another small gain posting 2.1% for September. This brings this year-to-date return to 18.4%, over double that of its benchmark.

Cambridge Futures

These gains are despite the fact that the FTSE dropped in September and it shows how our long/flat traders work. Cambridge Futures will be in the market looking to track the FTSE with a little leverage, but most importantly, it will move to a cash position after a rally if economic or geopolitical tensions look like they might impact the market. Missing a drop is just as important as catching gains and this shows why.

The strategy is currently flat as tensions rise in the Middle East. October could bring more opportunities to the patient, and we’ll be sure to let you know how it fares in the coming month.

Our ‘Tech Entry’ plays have also been performing well recently. The Long/Flat CAC Tech Entry added another 5% to its year to date and even though the FTSE Tech Entry lagged a little behind with 1.6%, it is now positive by 17% on the year. This is only slightly behind Cambridge Futures which has successfully added 18.4% to all its subscribers' portfolios.

Of the trackers, the DAX had a month to remember. As the only positive major European index this month those linked to the DAX had a better month than most. However, trackers are not a short-term play and we’re always hesitant to report too much about them within ‘Strategy of the Month’ as passive strategies which track the market should be approached with a much longer-term view.

That said, those who are linked to the TPP DAX Tracker had a great month of outperformance as TPP also add a touch of leverage to the trackers to increase returns, and this month that paid off for the DAX.

U.S. stocks recovered from an early-September selloff as investors have grown more confident that the economy is headed for a soft landing and that the Federal Reserve will continue cutting interest rates.

Earlier in the week, Federal Reserve Chair Jerome Powell said that the economy remains strong and that the central bank is in no rush to cut interest rates. Speaking at a conference of business economists, Powell signalled that two more quarter-percentage-point cuts to the benchmark fed funds rate are possible this year if economic data comes in as expected.

While this might be slightly too Dovish for some, stocks are still reacting to the good news that rate cuts have started. Whether it’s another 0.5% or 0.75% before the year end, it really doesn’t matter, and this was shown by the number of stocks boosting the S&P 500 which continued to expand in September, after an initial uptick earlier in the third quarter.

Investors have also proven eager to swoop in and buy the dip in stocks, suggesting that they still see value amid the tumult.

In September, as in August, the market kicked off the month with a nosedive, only to quickly win back its losses. According to Dow Jones data, this year marked the first time ever that the S&P 500 has finished higher for two months in a row following a drop of 4% or more during their opening days.

Ari Wald, chief technical strategist at Oppenheimer, told MarketWatch that the improving breadth, in particular, is a sign that the market remains on “healthy” footing.

“We’re seeing these pockets of the market that haven’t really participated to the same degree catch up,” Wald said. “We think it’s still the middle innings of a secular bull market.”

This sector rotation, combined with the Fed’s shift toward a policy of easing and the likelihood that strong earnings will continue during the third quarter, could “set up the stock market well going into October and the last quarter of 2024,” said Jay Woods, chief global strategist at Freedom Capital Markets.

That said, some doubt that the market’s gains from here on out will be as rapid as what investors have seen over the past two years.

This diversification has helped a few of our US and Global trading strategies post some more positive results. Stock Mixed notched one of the best returns in September with a return of 5.3%; The Pershing Selection, which mimics Pershing Square but with a touch of leverage, returned 4.8% in September bringing the YTD return up to 15.3% as of the end of the month.

The Pershing Selection

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The Banker’s Fund isn’t far behind with 15% YTD and 3.5% over the month of September. This fund takes the top 25 equity positions as owned by Goldman Sachs, JP Morgan, Citigroup, HSBC and UBS Group and creates one amalgamated portfolio of the Banker’s favourites. The Shape Ratio on this trading strategy is currently a very impressive 1.80.

Predictably the US index trackers also performed very well but as we’ve mentioned, these are best looked at with a much longer-term view. Having said that, we can’t ignore the incredible run the S&P 500 has had this year. This is the reason you have a leveraged TPP Tracker in your portfolio:

S&P 500 Leveraged Tracker

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After a long stretch of calm, volatility returned to markets over the summer. BNY’s Head of Investment Analysis, Jake Jolly, said that given the uncertainty surrounding how quickly the Fed might move to cut rates in the future, it’s likely that investors will continue to encounter bouts of volatility on a more regular basis.

BNY expects the pace of the rally could slow in 2025.

With the two-year anniversary of the start of the bull market looming in October, investors could be tempted to look back and take stock of how far things have come. That could leave some with vertigo.

September has ended, and it has been a mostly triumphant month for the stock market despite a rough start. But history suggests investors could wake up to more volatility in October.

To be sure, major indexes like the S&P 500 are poised to buck a well-established historical trend by finishing September in the green. For nearly a century, the month has been the worst of the calendar year for stocks, and returns in recent years have been particularly disheartening.

A similar seasonal analysis suggests things could get rocky in October, too.

During election years, the stock market’s September weakness has tended to spill over into October, according to data from CFRA’s Sam Stovall that dates back to the 1940s.

But it’s not just seasonal trends giving investors pause: Any one of a number of catalysts could arrive to rattle investors’ confidence during the month ahead. Notably, while the Fed’s jumbo interest-rate cut helped boost stocks in September, investors won’t be able to fall back on the steady hand of Fed Chair Jerome Powell; the Fed’s next policy meeting isn’t until November.

In the interim, they will have to contend with a parade of economic data, with each new data point potentially unearthing new risks.

Even formerly second-tier reports like the Fed’s Beige Book and retail-sales readings could swing markets as investors try to ascertain how much the labour market is slowing and where the economy might be headed next, said BNY’s Jolly.

The first marquee report is due on Friday when the Labor Department releases its monthly nonfarm-payrolls report for September. “That’s the next big test for the market,” Jolly said.

The start of the third-quarter corporate earnings season could also present challenges. After a strong second quarter, Wall Street expects America’s biggest companies to report even more aggressive profit growth in 2025.

Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, told MarketWatch that any guidance that challenges these expectations could deliver another setback to a rally that has seen the S&P 500 climb 60% from its October 2022 lows, according to FactSet data.

All the while, geopolitical and political risks lurk in the background. An “October surprise” that shifts the calculus surrounding the November election could leave investors rattled. So could signs that the fledgling conflict between Israel and the Lebanese militant group Hezbollah may be poised to escalate.

With equity valuations on the high side relative to history, any disappointment could quickly snowball, Sandven told MarketWatch.

“Stocks are priced for perfection right now, so there’s a lot that needs to go right,” he said.

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Our positions moving into October on the TPP platform:

A glance across our platform suggests that many are adopting a cautious approach coming into October.

The trackers continue to track. That is their job after all. However, looking across the other 2 approaches on the TPP platform, and the word caution springs to mind.

Many of our long or flats, are either flat at the moment, or for the few who have entered the market so far in October, they have looked to take profit quite quickly. It will be interesting to see if that remains the approach over the rest of the month whilst Middle East tensions continue to reside in the market place.

Our active strategies have profited early this month as many of them have held a small 'short sell' position. However, if markets continue to retrace it might allow them to take profit on the short sells and/or look to buy into a falling market.

It was a solid Q3 pretty much across the board for most strategies on TPP, and now Q4 has arrived, I expect our strategies will continue to look to beat their benchmarks.

If you're a client, we wish you all the best for the coming quarter. If you're a prospect who is considering facilitating an account with TPP, don't hesitate to get in touch to find out more about the 3 tactics TPP employs to build diversified and robust portfolios.

Have a positive end to the week, and look out for our review of the quarter which should be with you next week.

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