What Led To The Rally Today ?

Market Update - Wednesday, 26 Nov

The markets had a very strong day, fueled by a single report from the U.S. indicating that the inflation rate is below expectations. This news immediately sent the anticipation for a potential December rate cut through the roof. Asian markets responded with significant strength and were up in trade, which led to our own market opening much higher than expected for the day.

Looking at the charts, the Nifty chart showed a single, sharp move of 1.24%, which impressively covered the entire range of the previous four days. This is a powerful move, unlike anything seen recently, where the open of the day was also the low of the day.

• Nifty Jr climbed back quite dramatically, up 1.49%, almost recovering the losses from the two steep fall days of the previous week.

• Mid-caps gained 1.28%, recovering everything lost in the last three or four days, and small caps rose by 1.18%, although they remain further from their all-time highs.

• Overall, it was a great day for rebuilding confidence. The Nifty Bank actually closed at a new high, up 1.2% for the day, exhibiting the same decisive action where the open equaled the low, with no wick on the candle.

• Gold was up 0.93%, now trading at Rs.12,664 per gram and is just a stone's throw away from its previous high in rupee terms.

• Silver performed even better, surging 1.96%.

Other Market Triggers

• The Nifty heat map was almost entirely green, with Bharti Airtel and Adani Enterprise taking a break, down slightly.

• The market was led by Reliance (up 1.9%) along with strong gains in HDFC Bank, ICICI Bank, Bajaj Finance, Axis Bank, Kotak Bank, Maruti, TCS, Infosys, Tata Motors, L&T, Indigo, and JSW Steel.

• The Nifty Next 50 heat map showed no red whatsoever, with big gains in stocks like Vedanta, Tata Power, Siemens, Mazdock, Bosch, Varun Beverages, HAL, TVS Motors, and BPCL, demonstrating the significant breadth of the strong move.

• In the "mover of the day" segment, Natco Pharma jumped 11.2%, continuing an earlier breakout after a three-day correction, moving from 800 to 927 in a short time.

U.S. Market Update

• The U.S. Markets also reversed dramatically in the previous session, with the S&P and Dow Jones gaining 1% to 1.5%, the NASDAQ up half a percent, and the Russell 2000 (the broader market index) leaping up by 2.1%.

• Key movers included Merck & Co. (up 5%), Home Depot, Philip Morris, Lowe's, and Meta. Merck, in particular, has seen a strong pull, moving from $80 to $105 recently. Some of these stocks could potentially be part of the Weekend Investing US stock strategy, but please note these are not recommendations, and the disclaimer applies.

What to watch next ?

• Suddenly, the glum mood following yesterday's expiry has completely reversed, pushing the market to a new all-time high, or at least very close to it. The sentiment has swung dramatically from complete pessimism to renewed hope.

• When the day's open equals its high or low, it suggests the market is very decisive about its starting point and the direction of its trend. Given this, it is now highly likely that the Nifty will head to a new all-time high.

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📰 The Asset Allocator: Navigating the Dynamics of Investment Returns

Today, we delve into the performance of various asset classes over the last 10 years (from 2016 to 2025, according to the data sourced from ET Wealth). We will be analyzing the annual returns of eight different asset classes: Silver, Government Securities, Real Estate, Gold, Short-Term Debt, Equity Mid Cap, Equity Large Cap, and Equity Small Cap.

The key takeaway from this extensive dataset is the inherent unpredictability and cyclical nature of market performance.

The Myth of the 'Always-Winning' Asset Class

The data unequivocally shows that no single asset class will remain permanently at the top or the bottom of the performance rankings. The champions of one year often become the laggards of the next, and vice-versa.

• Illustrating the Volatility:

  • In 2016, Silver was the top performer with a 17% return. In the very next year, it dropped to sixth position. However, it surged back to the top spot in 2020 and is projected to be the top performer again in 2025.

  • Equity Small Cap had an eighth-place finish in 2016 with a meager 1% return. The following year, it delivered a massive 54% return, only to be followed by significant losses (-29% and -9%) in the subsequent years, demonstrating its extreme volatility. It has seen returns as high as +57% and +54% in later years.

This demonstrates that different asset classes perform differently at different times. Attempting to guess the annual top performer is a speculative and high-risk endeavor.

The Necessity of Asset Allocation

Since we cannot reliably predict which asset class will lead the pack each year, Asset Allocation becomes absolutely essential.

By distributing your investments across a diverse mix of assets, you ensure that you capture returns when any particular sector or asset class performs well. A dynamic approach—where you slightly adjust weights based on momentum or increased confidence—can significantly enhance your overall portfolio returns.

Long-Term Average Returns (2016–2025)

Looking at the 10-year average returns (see the image above) provides a compelling argument for diversification and strategic weighting.

The data suggests that a slight leaning towards assets like Gold, Mid-Caps, and Silver over this 10-year period would have resulted in an outperforming portfolio.

Key Learning (The Core Principle):

• The Power of Cyclicality: All asset classes move in cycles. The asset that is underperforming today has the potential to become the top performer tomorrow. Relying on past returns for future success is a fundamental mistake.

Meme Of The Day