PCE Inflation Data and the August Jobs Report will be the biggest things investors watch this week. But with market sentiment being flat, it’s nearly impossible to tell how the stock market will respond to this week’s economic data. And with all of the news coming out this week, it’s not possible to include it all in this week’s newsletter. So make sure you watch this week’s market preparation video on YouTube for the full analysis of what to watch out for this week: https://www.youtube.com/watch?v=5gXodPq0RPo&list=UULFxFRGG-_23Kqxe0YexDc1eg
Last Week Recap
Nvidia reported a blowout earnings, far exceeding investor’s expectations, and recording the highest revenue in the company’s history. Normally that would have triggered a massive stock market rally as AI hype lifts the entire stock market. But that didn’t happen this time. While stocks did rise after hours on Wednesday when Nvidia reported earnings, the stock market fell on Thursday, and by the end of Friday, Nvidia was trading lower than it was prior to reporting earnings. This has caused a lot of concern that the AI hype that lifted the stock market for the past 10 months might be wearing off. And that means stocks might start selling off as valuations get back down to normal. The stock market is currently trading about 15% above historical valuations, meaning the stock market would have to fall 15% just to get back down to normal valuations.
At the Jackson Hole summit, Federal Reserve Chairman Jerome Powell reiterated the same message he’s been giving all along. The stock market sold off on Thursday out of fear that Jerome Powell might come out hawkish on Friday. And while he did, it wasn’t anything surprising. That caused the stock market to recover some of Thursday’s losses on Friday and allowed the S&P and NASDAQ to finish the week in the green.
For the 2nd week in a row the fear and greed index (https://www.cnn.com/markets/fear-and-greed) closed in the neutral stage. This means investors are neither bullish nor bearish. As a result, trying to determine how the stock market might respond to this week’s economic news will be nearly impossible.
The volatility index (VIX) fell significantly last week as the technical rebound rally that I predicted last week played out. The VIX closed the week down 9% to 15.68. This keeps the VIX in bullish territory despite the fact that September is historically the worst month of the year for the stock market.
Despite Friday’s rise in the stock market, all 4 major indices remain 100% bearish on the daily charts. Stocks attempted to rise back above key resistance levels on Friday, but failed. This would indicate a continuation of the bearishness this week.
On the weekly charts, all 4 major indices are starting to show signs of bearishness, although they remain mostly neutral for now. The DOW and S&P closed 100% neutral, while the NASDAQ closed mildly mixed. While the MACD on the NASDAQ turned bearish, the candle closed right at the 10 week EMA, and the RSI closed slightly bullish at 60. The Russell 2000 also closed mixed with the candles bearish closing below the 10, 21, and 100 day EMAs, but the MACD and RSI at neutral. So the weekly technicals are falling in line with the CNN Fear and Greed Index – neutral.
This week is full of major economic news. On Wednesday, the ADP employment report for August is released, and it’s expected to show a significant decline in job growth. Then on Thursday the Personal Consumption Expenditures Index (PCE) is being released, and it’s expected to show an increase in inflation. Finally on Friday, the official jobs data for August is being released, and it’s also expected to show a decline in job growth, although unemployment is expected to decline as well.
So expectations are bad. And the jobs reports really do show the labor market declining at the same time inflation is rising, that would mean we are in an economic situation called stagflation. Unfortunately the only way out of stagflation is for the Federal Reserve to trigger a recession, thereby slowing the economy down enough to stop inflation.
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
There are a few companies reporting earnings this week that you might be interested in. Most notably, NIO, Best Buy, and Pinduoduo all report Tuesday before the open. And Crowdstrike and Salesforce both report Wednesday after the close.
Other Things to Know
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Wishing you the best of success trading this week,