Market Commentary - September 2024

September was a strong month with a gain of +3.21% for the MetaSpace Fund. The big event of the month was the FED's interest rate announcement, where they implemented a so-called double cut or 0.5%. The FED described a forecast where the intention is to continue lowering during 2024 and next year to 3.25% in the summer of 2025. With inflation now around 2.5%, this interest rate forecast shows that it is still fairly restrictive and thus not too afraid of a recession. By far the most important data going forward will be on jobs. So far, inflation has gone down while we still have a fairly strong labor market in the US. However, if people start to lose their jobs or worry about losing their jobs, then there will definitely be legitimate fears of recession. In that case, low interest rates will not be enough to keep people consuming.

The US Business Cycle Research Report is a report that analyzes and tracks the economic cycles in the United States. It is carried out by various economic research institutes or organizations that monitor and identify changes in the US economy and try to predict the risk of a recession within the next 12 months. According to this, the risk of a recession is low, around 10%.

As noted in previous reports, the US market has been uniquely concentrated around the largest companies, commonly known as “The Magnificent 7.” These companies have been responsible for nearly all recent returns, with concentration levels only increasing. In my view, the catalyst for returns to spread to smaller companies that historically deliver better performance over time is interest rate cuts. Over the past few months, we’ve observed such a shift, with smaller companies beginning to outperform. Besides rate cuts, the critical factor for this rotation is improved earnings among smaller companies relative to the largest ones—a trend that recent reports confirm is now underway.

Holdings

Once again, our best-performing holding was in the space sector, with Rocket Lab posting a +55.5% gain for the month. Recently, the fund added a few space-focused companies, with Rocket Lab now our largest holding. Rocket Lab stands as the only major player aside from Elon Musk's SpaceX involved in rocket launches. Led by Peter Beck, often considered New Zealand’s answer to Elon Musk, the company has now reached profitability in its launches, and a new, larger rocket is nearing launch. Rocket Lab is also a significant player in space components, with an order backlog exceeding USD 1 billion. In September, several major analyst firms upgraded their recommendations on Rocket Lab.

Conversely, Swedish eye-tracking company Smart Eye was the fund’s weakest performer, down -17.5% for the month. Smart Eye, which represents just over 2% of the fund, reported increased sales and reduced losses in its Q2 results. However, it issued guidance for a weaker Q3, citing challenges in the European automotive industry, which is its primary market. Smart Eye continues to develop eye-tracking and AI technology in collaboration with major car brands.

News

Augmented Reality (AR) remains a dynamic field. In last month’s update, we discussed Meta’s investment in slimmer “smart glasses,” with Zuckerberg recently revealing a prototype named Orion AR glasses. These glasses combine AR and AI in a streamlined form, showcasing how these two technologies can create multifunctional, smart wearables. Recently, sources within Apple have suggested that Apple, too, is shifting its focus from its advanced AR/VR Vision Pro glasses to sleeker “smart glasses.” Long a major proponent of AR under Tim Cook’s leadership, Apple is currently developing the next Vision Pro version. While the Vision Pro has been somewhat niche, a more accessible pair of “smart glasses” could achieve widespread market appeal.