S&P 500 Nears Historic High Before Fed Decision – Is It Time to Buy?

The S&P 500 index has been on a remarkable rise year on year even after the past corrections historically. As the index is approaching new high, this makes many wonder: Is it the right time to buy into the market?

The S&P 500 is reaching new highs thanks to strong economic growth, good corporate earnings, and easy money policies. Important signs like consumer spending, job numbers, and business investment are all looking good. This makes investors feel positive about the market.

US office reits on the uptrend, is it sustainable

Overall, Reits listed in SGX have performed well in view of the coming rate cut. Today, I want to look at the US office reits in particular, as they have been beaten badly due to low occupancy rate since Covid, and the property valuation affected by the high interest rate environment.

Prime US REIT (SGX:OXMU) (PRIME) 

1. Turn long (arrow) with surge in volume

2. And this candle closed up the gap down on the left

3. Price close above 20ma

Fed hinted rate cut may start in September, sparked breakout in these asset classes

Federal Reserve Chairman Jerome Powell signalled on Wednesday that a rate cut could happen in September, as long as there is no major change or upset from the economic data. Given this confidence, market is shifting to long term  US Treasury bonds and Reits.

And on Friday, US market tumbled on fear of possible recession and some reports are also expecting a bigger rate cut coming September.

Fortunately, a few months ago when the S&P500 and QQQ indexes were performing extremely well, and as part of re-balancing, I have sold off some and move them in tranches into the Bond etfs.

Here is how to receive $5000 for your retirement

 It seems $5000 is the magic number to live comfortably for retirement in Singapore, as I have seen a few posts on this, However, one needs to know that this amount will varies as it really depends on one's lifestyle and situation.

Anyway, given this amount, how then do you achieve it for your retirement?

Before I start, here are the assumptions:

• Attained Full Retirement Sum(FRS) at 55
• Opt for CPF payout at 65
• Sum of $408,000 invested in a ETF which gives a return of 8% or more at 55
• Retire at age 65.

The amount invested will be much lower if this is shared with your spouse. as not forgetting that your spouse will also have his/her CPF payout as well.

I have been buying these ETF since FED signalled no more rate hike

 Last night (Singapore time), the Federal Reserve kept its key interest rate unchanged and indicated that there will be one rate cute before end of this year. Now that there is clarity on the direction of the interest rates, what does one need to prepare so that he can benefit when the rate cut happens.

In this article by Schroders, both stocks and Bonds have significantly outperformed cash following the rate cut. If a recession does not ensue, stocks typically fare better than Bonds. However, in the event of a recession, Bonds generally outperform stocks. Since the initial rate hike, Bonds have faced substantial correction, but long-term bonds now offer attractive yields. In anyway, one should have a proportion of Bonds asset as part of the asset allocation of ones' portfolio. 

Fed leaves rate unchanged, what it means to us as investors

The most recent inflation data in the US exceeded last year's figures, aligning with market expectations that the May FOMC meeting would not announce a rate cut. As anticipated, the Federal Reserve Chair refrained from lowering rates and notably indicated that a rate hike is unlikely.

Given this insight from the Fed Chair, let's examine historical instances of rate hikes and their impact on the S&P 500 index when rates remained steady versus when rate cuts were eventually implemented.

Below is the chart from Forbes, 

In the chart, the historical rate hike cycles are depicted alongside the performance of the S&P 500 index during various periods when the Federal Reserve paused its rate hikes. It is observed that the S&P 500 exhibited predominantly positive returns during these pause periods before a rate cut.

Then the next question to ask, is the S&P500 now expensive? Below is the chart from gurufocus on the Shiller PE ratio of the S&P500.

As depicted in the chart, the S&P 500 has corrected to a level within one standard deviation (1SD). At this juncture, it is clear that the market is not offering cheap valuations.

Nevertheless, the market is unpredictable, echoing the sentiments of the late John Bogle, who emphasized the importance of staying the course in investing and adhering to a sound asset allocation strategy.

  

Should you invest in this fund that gives you 5% yield?

This ETF is targeting to be listed on 13May 2024, and the name of the ETF is 'LION-OCBC SECURITIES APAC FINANCIALS DIVIDEND PLUS ETF'. As indicated in the website, the ETF will be paying 5% dividend yield for the first 2 years. What will I be doing?

Let's look at what I like about this ETF:

1. Well known brand with LION-OCBC, and top financial institutions.
2. Decent 5% dividend yield for first 2 years, and if it can continue.
3. Predictable payout with quarterly distribution.
4. Diversify (almost equal weightage) across major economic countries such as Singapore, Japan, Australia, Korea, Hong Kong, Malaysia, etc.
5. Exposure to market (japan, korea, Australia) which is difficult to access for retail investors.

Now, what I dont like about this ETF:

1. Concentration in only Financial sector in these markets.
2. Most of the counters in the ETF are trading close to or at all time high.
3. How will the Fed rate cut affect this ETF.
4. Underlying index is paying a dividend yield of 5.91%.
5. From the ETF website it stated as a disclaimer that the distributions are not guaranteed.

For those who are happy with the 5% dividend yield, this is not a bad choice to have exposure to these markets.

For those who wants a little more and can wait, given that the underlying index has a past dividend yield range of 4.2% to 5.91%, maybe more attractive to enter when the yield is more than 5.5%.

Please do your own due diligence, this is not an investment advice.