US markets closed lower on Wednesday as rising Treasury yields weighed on tech stocks and dampened hopes for Fed rate cuts. Asia markets were mixed, with Japan’s Nikkei 225 leading gains, while Australia’s S&P/ASX 200 declined. European stock markets edged higher as investors focused on third-quarter earnings and regional economic data. Oil prices rose over 2% as geopolitical tensions in the Middle East kept traders cautious.
The stock market is experiencing a surge in optimism driven by strong economic data, China’s potential stimulus package, and favorable market positioning. However, while the current rally is positive, potential inflation from China’s stimulus and the Fed’s aggressive rate cuts could pose risks down the road. Investors are advised to consider a protection band strategy to manage potential market volatility.
Gold, a traditional safe-haven asset, is experiencing renewed interest amid economic uncertainty and potential Fed rate cuts. Goldman Sachs predicts gold could reach $2,700 by early 2024, driven by geopolitical tensions and declining interest rates. While leveraged ETFs offer traders opportunities to capitalize on gold’s fluctuations, their short-term nature necessitates careful consideration.
Revised US employment data from April 2023 to March 2024 revealed a slower pace of job growth than initially reported. This downward revision has fueled expectations of aggressive Fed rate cuts, impacting the dollar and other markets.
Despite the potential for Fed rate cuts, which could lower dividends for most CLO ETFs, the author remains bullish on these funds for three reasons: their strong current yields, their expected strong yields for the next two years as per Fed guidance, and their low risk profile with little credit or interest rate risk. The author also provides a brief overview of CLOs and explains the three CLO ETF types: AAA-rated (JAAA), BBB-rated (JBBB), and BBB and BB-rated (CLOZ).
