The Federal Reserve just did their first rate cut in years. And with the September Effect still in the picture, what’s next for stocks? This free weekly newsletter gets you prepared for the week ahead. Let’s discuss the September Effect and what’s going to move the markets this week. If you want a longer term outlook on the markets, be sure to watch my latest video here: https://www.youtube.com/watch?v=CSkrmD6O3qk.
Last Week Recap
The stock market continued to rally last week, with all 4 of the major market indices finishing the week up over 1%. This keeps the market on track for the historical September Effect. Historically the stock market falls in the last week of September and wipes out all of the gains from the first three weeks. With all 4 major indices up about 1% this month, the market would have to fall by around 2.5% this week to keep the September Effect alive. If the market does manage to finish this month in the green (as technical analysis is indicating it will), it will be the first time in 5 years it has done so.
Last week was boosted early in the week by a surprise increase in consumer spending. Economists were expecting consumer spending to come in at a decline of 0.3% year-over-year, but consumer spending posted a surprise beat of a 0.1% increase instead.
The Federal Reserve also gave the markets something to cheer about when they announced a 0.5% rate cut instead of the expected 0.25% rate cut. The market initially struggled with how to respond to the news, as the Federal Reserve also forecasted only 4 rate cuts this year vs the expected 5 rate cuts the market was pricing in. After a rocky start on Wednesday, the market rallied on Thursday, locking in gains for the week despite a pull-back on Friday.
Looking ahead to this week, the market will now have to deal with numerous Federal Reserve members speaking about their decision last week. The market will also have to consider the possibility of a government shutdown should Congress fail to pass a spending bill by the end of the month. Late Sunday night Congress did come to a tentative agreement. That bill will now have to be voted on and pass both the House and Senate before being sent to President Biden for approval.
Market Sentiment
With the market having now risen for the past two weeks in a row, the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) has returned to the Greed stage. What’s interesting through is that fact that while stocks are very bullish, options traders are more cautious, with both options indicators coming in at Neutral. Bond investors also remain fearful, indicating concern that a slowing economy might cause companies to miss bond payments. Both options traders and bond traders are generally considered to be more sophisticated than stock traders, so we’ll have to see if the pessimism from bond and options traders will bring down the stock market in the coming weeks.
The VIX lines up with the options portion of the CNN Fear and Greed Index, finishing the week at 16.15, which is neutral. Options traders aren’t indicating a clear direction for the market, but with the VIX showing much more pessimism than the stock market, I wouldn’t be surprised to see a pull-back in the stock market over the next two weeks.
Technical Analysis
All 4 major indices are 100% bullish right now. They are all about 1% above their respective 10 day EMA levels, so we might see a slight pull-back one or two days next week. But overall, all 4 major indices are indicating a continued bull run at this time. Lacking any surprises from Federal Reserve members or economic news coming out this week, we should see a continued increase in stocks just based upon the daily technicals alone.
The weekly charts are mildly less bullish than the daily charts. While the DOW and Russell 2000 are both 100% bullish, the S&P 500 and NASDAQ are only 90% bullish, with the MACD being the one outlier indicating bearishness. Overall though, the weekly charts are in alignment with the daily charts and are indicating a continued bull run.
Economic News
Beyond the scheduled economic data being released this week, investors need to keep their eyes on Congress to see if they can get their appropriations bill passed in time to avoid a government shutdown at the end of the month. Late Sunday night it appears Congress had reached an agreement, but that bill will still need to be voted on and will need to pass both the House and Senate before being signed by President Biden.
The biggest economic news that will move the markets this week includes the PMI US services and manufacturing indexes Monday morning, the Consumer confidence survey Tuesday, and the GDP revision Thursday. Investors also need to keep their eye on the PCE inflation report being released on Friday, although at this point it appears the Federal Reserve is more concerned about the economy than inflation, so that report shouldn’t have a significant impact on the market.
What might have a larger impact than the economic news though are the Fed speakers. Numerous Federal Reserve members are expected to speak every day this week. Investors are looking for any indication of how future rate cut votes might go. If investors like what they hear, it could send stocks higher. And if investors don’t like what they hear, it could send stocks lower. So study the Federal Reserve calendar below and make sure you know when each Fed member is speaking this week – especially if you’re a day trader.
Here’s the full list of all of the economic news coming out this week as well as the time each report is being released: https://www.marketwatch.com/economy-politics/calendar
Here’s what time each Fed member is speaking this week: https://www.federalreserve.gov/newsevents/calendar.htm
Earnings
A few companies are reporting earnings this week that you might be interested in. KB Homes reports Tuesday after the close, Micron reports Wednesday after the close, and Costco reports Thursday after the close.
Crypto
Bitcoin broke back into bullish territory last week, with the weekly charts starting to turn bullish for the first time in over a month. Bitcoin will still have to break above the strong resistance level of $73,000 before continuing higher though. This might be a good time to start loading up on Bitcoin. Just make sure to keep stop losses in place until Bitcoin breaks above $70,000. If Bitcoin can close above $74,000, it’s off to the races with $100,000 in site. Bitcoin’s rally should cause most of the altcoins to rise as well.
Stock investors might also be interested to know that the SEC approved options trading on BlackRock’s spot bitcoin ETF, ticker IBIT. The OCC and CFTC will still have to approve options trading as well before options can officially list, but this does bring options trading one step closer to reality for investors looking for a way to get greater returns on crypto, or just to short Bitcoin.
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry