Wall Street stocks surged this month after the Federal Reserve released minutes of its September meeting, which resulted in the first interest rate cuts in over four years. The details disclosed a ‘substantial majority’ of central bankers backing the 0.5 percentage-point cut, raising optimism among investors for further cuts ahead.
The broader market hit record highs on October 11, driven by several financial stocks reporting stronger-than-expected results during the recently concluded quarter. Another factor encouraging investors has been the downturn in US inflation, which fell to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate. This has raised hopes of a quarter-point cut in the central bank’s next meeting in November.
However, some analysts warn against diving into stocks after interest rate cuts, citing uncertainty around the upcoming presidential elections. Liz Young Thomas, the head of investment strategy at SoFi, while talking to Business Insider in early September discussed historic patterns in US markets towards the end of the third quarter and the beginning of the fourth.
She noted how the market performs well between June and August due to thinner volumes when traders are on vacation, while volatility picks up with an uptick in activity after they return to their desks in September. However, during the election year, this volatility peaks around mid-October, instead of September, according to Young Thomas.
Fundstrat Global Advisors’ co-founder, Tom Lee, has also cautioned investors against election-related uncertainty. Here is what he stated in an interview with CNBC late last month:
This Fed cut cycle I think is setting the stage for markets to be really strong over the next one month or next three months. But, what the stocks do between now and let’s say election day, I think is still a lot of uncertainty. And that’s the reason why I’m a little hesitant for investors to dive in.
Earlier that month in the weeks leading to the interest rate cuts, Lee, who is generally bullish on the stock market, forecasted a 7-10% dip between September and October amid nervousness around the presidential elections. However, Lee urged investors to ‘buy the dip’, indicating that he sees the likely fall as an opportunity to buy stocks while they trade for a lower value.
Adam Turnquist from LPL Financial also anticipates seasonal volatility in the weeks ahead but reiterated what Lee did, that the dip presents an opportunity to buy when the share is trading low and earn high returns when the market stabilizes. Turnquist advises investors not to readjust their existing portfolios because seasonal volatility has short-term effects and is difficult to forecast.
With that said, let’s now shift focus to hedge fund sentiment on the stock market and discuss some of the most widely held stocks by hedge funds.
Methodology
We scanned Insider Monkey’s database of 912 hedge funds for the second quarter of 2024 and picked the top 10 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 142
Mastercard Incorporated (NYSE:MA) is an American payment card services company headquartered in Purchase, New York. It provides financial services to individual consumers, merchants, small and large businesses, and governments by facilitating electronic funds transfers.
During the second quarter, the company delivered strong results with net revenues growing 13% to $6.96 billion. Adjusted net income stood at $3.3 billion, expanding 24% from last year, resulting in an EPS of $3.59 which comfortably beat estimates of $3.51 per share. CEO, Michael Miebach, credited the strong performance to healthy consumer spending and cross-border volume growth.
Miebach said that the decline in inflation rates, wage growth, and a solid labor market drove increased consumer spending during the quarter. While price levels are still elevated for various key essentials, many central banks have started to ease their policies amid a reduction in interest rates. Cross-border volume climbed 17% which was attributed to an increase in travel demand.
According to the United Nations, international tourism is on track to reach pre-pandemic levels this year, which bodes well for Mastercard Incorporated (NYSE:MA)’s future outlook. The company also signed several new travel partnerships in Q2. These included a co-brand agreement with Ethiopian Airlines, the largest airline in Africa, and multi-year contracts with Expedia and Wells Fargo to launch two new co-brand cards with a range of unique travel benefits.
Switched transactions on Mastercard’s network increased 11% year-over-year in Q2, compared to 12% in Q1, reflecting some deceleration in growth. Despite that, consumer spending remains on solid ground and is on track for growth as international travel continues to rise. As a result, Wall Street analysts are bullish on the stock and have a consensus on its Buy rating. Hedge fund sentiment also remains strong. According to Insider Monkey’s database for Q2 2024, 142 hedge funds had investments in Mastercard, making it one of the most owned stocks by hedge funds right now.
Overall MA ranks 10th on our list of the most owned stocks by hedge funds right now. While we acknowledge the potential of MA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.