Cedears: Record Rates, Euphoria for AI, and Brazil Reshaping the Stock Map—What Could Happen Next?

International equities navigated the last month with a marked dispersion among sectors and companies, in a scenario that combined the tightening of financial conditions in the United States, the renewed momentum of companies linked to artificial intelligence, and increased volatility in some emerging markets.{#p-1791410947156-29831}

Additionally, there was pressure from oil on inflation expectations and, in Brazil, a presidential election that significantly altered investors' expectations. Thus, while much of Wall Street closed the period down, certain technology segments managed to decouple, while other sectors more exposed to financing costs, consumption, and commodities lagged behind.{#p-1791413220061-89574}

This dynamic also translated to the local market through Cedears, where the differences between winners and losers were particularly wide. The trends from Wall Street were complemented by the strong rally of Brazilian stocks, which led the neighboring country's stock market to reach historical highs.{#p-1791410947156-9710}

In this context, analysts consulted by Ámbito explained what factors were behind these variations, what variables could condition the market in the coming months, and where investment opportunities within the universe of Cedears are beginning to appear.{#p-1791413271023-60704}

The first rate hike under Kevin Warsh's leadership widened the dispersion among sectors on Wall Street.{#p-1791413384360-24873}

Higher Rates and Strong Dispersion Among Sectors

One of the main factors affecting the market during September was the tightening of financial conditions in the United States. According to Tomás Sisto Bourel, research analyst at Fortress Capital, "the big event of September was the rate hike", a move that had not been seen since July 2023 and that had a very different impact depending on the sector.{#p-1791412802633-92480}

In this scenario, nine of the eleven sectors of the S&P 500 ended the period down, and about 78% of the companies in the index declined. However, the correction was not homogeneous. Among the most affected were real estate, with a drop of 6.8%, financials, with 6.2%, and materials, with 6%.{#p-1791412802633-40193}

Regarding real estate and financials, Sisto Bourel linked the poor performance to the increased cost of credit, given the weight that financing has in both activities. He explained that with higher rates, "funding becomes more expensive and ends up pressuring both activity and valuations". In materials, on the other hand, he pointed to another channel, as a scenario of high rates tends to favor an appreciation of the dollar and, through that route, can pressure the price of commodities.{#p-1791412802633-16725}

This increased sensitivity became even more evident when observing performance by industries. Within the real estate sector, mortgage REITs, vehicles that primarily invest in mortgages and mortgage-backed securities, fell by 19.2%. Meanwhile, mortgage financing dropped by 17.4% and real estate services by 11.2%. In parallel, significant declines were also recorded in the financial sector, with a 10.3% drop in the capital markets, 8.8% in asset management firms, and 7.7% in diversified banks.

In light of this weakness, technology stocks managed to decouple and advanced by 7.1%, with the largest gains concentrated in communication equipment, chip manufacturing equipment, semiconductors, and electronic components. According to Sisto Bourel, this strength was attributed to a combination of more battered valuations following the corrections in July and August, and corporate results that exceeded expectations.

In particular, he highlighted the earnings of Nvidia and Micron, which once again showed solid demand linked to artificial intelligence and data centers, and stated that "this combination of better results, somewhat more battered valuations, and a recovery of momentum" allowed the sector to show superior relative performance.
Nvidia's results reinforced the strength of demand linked to artificial intelligence and data centers.

In the same vein, Federico Izaguirre Prencesvalle, Head of Private Banking, stated that the market entered a "growth concentration" scenario, where investors prioritize companies capable of demonstrating revenue growth, earnings per share expansion, and strong structural demand. He explained that artificial intelligence meets these conditions, which helps to understand why the market continues to tolerate high yields on Treasury bonds, even with the 10-year rate around 5.3%.

Cedears Reflect the AI Boom and Added Brazil Factor

The strong international dispersion also translated to the local market through Cedears. Among the largest gains were AMD and Intel, semiconductor manufacturers, with advances of 39.6% and 30.4%, respectively, Celestica, specialized in hardware and electronic manufacturing, with 39.1%, and CrowdStrike, dedicated to cybersecurity, with 34.7%. In these cases, the performance mirrored the strength shown on Wall Street by companies most linked to the infrastructure necessary for developing artificial intelligence.

On the other hand, declines were concentrated in several groups that had lagged behind in the United States. Among the financials, Blackstone fell 17.8%, Bank of America 12.8%, and Goldman Sachs 9.8%. Meanwhile, in the consumer sector, Nike dropped 11.2%, Home Depot 11%, and Starbucks 10.6%, while among precious metals miners, Pan American Silver lost 11%, Barrick 8.2%, and Newmont 6.1%.

For Izaguirre, the case of consumption responds to a logic different from the technological one. As he explained, companies like Nike, Home Depot, or Starbucks depend more on consumer health and, in a context of high rates, more expensive credit, still high inflation, and economic uncertainty, "the market begins to wonder if the consumer will maintain the same level of spending."

In precious metals, on the other hand, Izaguirre pointed out that gold and silver were coming from a very strong cycle and that the rise in Treasury yields, along with the strength of the dollar, favored a profit-taking.

However, the biggest boost of the period came from Brazil. Magazine Luiza, one of the main retail groups in the country, soared 79.4%, BTG Pactual, an investment bank, advanced 45.8%, XP, an investment and financial services platform, gained 43%, and Localiza, dedicated to vehicle rentals, rose 42.8%. Thus, the four largest increases among the Cedears by volume corresponded to Brazilian companies.

The Brazilian rally led several of its main companies to lead the increases among the Cedears.

In this case, Izaguirre stated that the movement was directly linked to the expectations prior to the election and with the reaction following the result. In the same line, from PPI they pointed out that Flávio Bolsonaro's electoral performance and the advance of the PL in Congress reinforced the expectations of greater fiscal discipline and reforms. This reading was reflected in an appreciation of the real, a compression of rates, and a strong revaluation of stocks, which led the Brazilian stock market to historical highs.

What to Look Forward to and Where Opportunities Arise

Looking ahead to the coming months, Sisto Bourel believes that the trajectory of rates will continue to be the main variable to monitor, although he also warns about other factors capable of sustaining volatility. Among them, he mentions the high CAPEX associated with artificial intelligence, tensions in the oil market, and the proximity of the midterm elections in the United States.

From that combination, his scenario contemplates the possibility of more persistent inflation and a loss of purchasing power of the dollar. Under that hypothesis, Fortress maintains a preference for equities over fixed income. "We believe that higher inflation can erode a significant part of the real yield of nominal debt instruments," he explained.

The midterm elections in the United States add to rates, oil, and AI as focal points of volatility for the coming months.

Within equities, the strategy changes according to the risk profile. For more conservative investors, the firm prefers greater exposure to value companies through the IVE ETF, aiming to reduce volatility. In contrast, for more aggressive profiles, it maintains a favorable view on technology through the QQQ, considering that several leading companies still present attractive valuations relative to their growth prospects.

In the same vein, Izaguirre continues to find opportunities among the companies that led the technological push. Despite the recent strong increases, he noted that AMD, Nvidia, Broadcom, Micron, Celestica, and Marvell remain well-positioned due to their latest earnings reports and outlooks.

However, in the face of a potential increase in volatility, he also suggests complementing the portfolio with more defensive characteristics companies. Among them, he mentioned Coca-Cola, Amazon, Microsoft, and Alphabet as alternatives to balance exposure against higher growth sectors.

Thus, the forward-looking scenario combines two axes. On one hand, interest rates, inflation, oil, and spending on artificial intelligence appear as the main variables capable of altering recent trends. On the other hand, opportunities continue to concentrate both in technology companies with solid fundamentals and in more defensive positions that can cushion a potential correction.

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