After a horrible September that saw the S&P fall nearly 5% and the NASDAQ fall by more than 5%, the market is shaping up for a rebound in October. But first, we’ll have to get through this week’s economic news.
Last Week Recap
While the DOW fell more than 1% last week, the S&P and NASDAQ were surprisingly resilient. The Russell 2000 even rose last week. The stock market remained fearful of a possible government shutdown, but it looked like most of the sell-off had occurred the week prior, allowing the market to take a breather last week.
There was some good economic news in the form of lower than expected inflation data and upwardly revised GDP data, but overall inflation still rose – even if by less than expected. And rising inflation is not good for the stock market, because it means the Federal Reserve will have to keep raising interest rates. And last week, that’s exactly what one Federal Reserve member said would happen.
The fear of higher interest rates sent bond yields rising and bond prices falling, while fears of a government shutdown kept the stock market at bay. Over the weekend though, the US Congress was able to pass a 45 day extension, preventing a government shutdown for now. That sent stock market futures skyrocketing, and caused crypto to jump over 4%.
Market Sentiment
Market sentiment (https://www.cnn.com/markets/fear-and-greed) fell deep into the Fear stage, even hitting Extreme Fear one day last week. Every individual factor of the CNN Fear and Greed index is in either Fear or Extreme Fear except one – junk bonds, which remain in extreme greed. I discussed the impact of this data point and what it means for the stock market in Sunday night’s video here: https://www.youtube.com/watch?v=R-MKMGzf9Ok&list=UULFxFRGG-_23Kqxe0YexDc1eg.
Despite the stock market trading flat last week, the volatility index (VIX) rose slightly to 17.52. While the VIX closed in bullish territory (below 18.50), it did rise to nearly 20 earlier in the week. The close below 18.50, combined with the bullish news we got over the weekend and the fact that historically October is a bullish month, means that the stock market will most likely rally this week.
Technical Analysis
After the massive sell-off over the past two weeks, the daily charts on all four major indices has become 100% bearish. However, the sell off was induced by fears of a government shutdown, which means now that the shutdown has been adverted, the stock market could ignore the technicals this week and rally.
Like the daily technicals, the weekly technicals have also become 100% bearish. And this is more telling, considering how the market topped out in July and has been falling for more than two months now. The weekly technicals are going to be more difficult for the market to overcome. It will take more than just the aversion of a government shutdown to cause the stock market to restart the bull market. Economic data will have to remain positive for the next couple of weeks in order for the stock market weekly technicals to turn bullish once again.
Economic News
This week is busy with a slew of September economic data being released. On Monday we get the September manufacturing data which is expected to have improved slightly from August, while still indicating contraction. Then every day starting Tuesday through Friday, we have jobs data being reported, the most important of which is the ADP private payrolls data on Wednesday, and the official government jobs data on Friday.
We also numerous Federal Reserve members speaking this week, including Governor Bowman on Wednesday and Governor Waller on Friday.
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
Even though earnings season won’t officially start until later this month, we still have a few companies reporting this week.
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry