It's officially a new trading month, and HSBC recommends investors broaden their exposure in the fourth quarter by seeking out stocks with more reasonable valuations. September was another winning month for stocks, as the S & P 500 saw its fifth consecutive month in the green. On the final trading day of the month, the broad market index posted another record close, adding to the index's gains of more than 20% in 2024.
Along with the S & P, the blue-chip Dow Jones Industrial Average and the tech-heavy Nasdaq Composite also closed out a positive month. "[W]e argue that much of this frothiness and loftiness is due to the dominance of the 'big' companies in the index, not only big tech but also big retail, big banks, and big pharma," Nicole Inui, head of equity strategy, Americas, wrote in a recent note to clients. "These 'big' companies represent the lion's share of equity index returns year to date.
" These gains come as the Federal Reserve cut interest rates by a half point last month – the first since the beginning of the Covid-19 pandemic. Inui forecasts that the central bank will cut by a quarter point at the next six FOMC meetings. "[As] we move into a lower (but not low) rate environment with growth still looking pretty resilient (the 3Q consensus GDP forecast is tracking 2.
3% y-o-y), we believe there are opportunities for investors to broaden exposure to companies with less demanding valuations," the strategist also said. That excludes small caps, however, as she noted.