September 23, 2024 by GalTrades.com
Powel said at the Jackson hole meeting, “The time has come for policy to adjust,” The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
It didn’t matter if we got a .25 or .50 basis point rate cut, earnings growth will determine if the market can keep going up.
The market made new all-time highs, but only one MAG7 stock made new all-time high, META. That means the rally is broadening, a positive point for the market.
The S&P is currently trading at a forward P/E of 21 which suggests that a lot has been priced regarding the bull thesis. Valuations are high and that should be noted. How much higher can the market go up? remains to be seen.
“don’t fight the Fed” or “don’t fight the trend” are statements to sustain near-term bullish momentum. Aside from the FED cutting rates, the economy still appears to be on firm footing.
Next week the earnings and economic calendar is relatively light, outside of next Friday’s PCE report, but perhaps this can be conducive for recent bullish momentum. In the absence of news, the path of least resistance is higher. Yes, we are still in the midst of bearish seasonality, but the technicals look encouraging.
Going forward bad news is good news because the FED will need to lower rates on bad news, unless the news is disastrous.
As long as the SPX can remain above July’s prior all-time closing high 5,667, we should see continuation. An SPX close below 5,667 could introduce concerns of a false breakout to all-time highs, which would likely introduce some additional selling pressure
A positive point: 76% of the S&P 500 stocks are above there 50 Day Moving Averages and 76% are above their 200 Day MA.
Year to date the two top performing factors were momentum and growth which were up 29/27 % respectively. The two worst preforming groups were yield and value stocks. In the last 3 month that flipped. Dividend and value stocks get an uptick when rates come down.
I see analysts calling for the small caps to go up with rate cuts. The action on Wednesday didn’t show that. It may be wise to react as opposed to jumping in now. It would make more sense for mid-caps to go up prior to small caps as there are more profitable companies in mid-cap sectors.
Statistics show post-election the markets usually end higher. And in the past when the FED has cut rates in a soft landing, or no landing markets ended up higher for the next 6 to 12 months almost 100% of the time.
Cyclical, mortgage, auto loan rates and small cap stand to benefit from rate cuts.
Rate cuts can ignite small caps and value stocks. The IJR index contains a higher % of companies which are profitable as opposed to the IWM Russell 2000.
Bull market indicators usually benefit capital market plays, stocks such as; CBOE, IBKR, BLK, GS. Rate cuts should help the homebuilders XHB ETF.
If Fed rate cuts can bring short-end bond yields down to more normal rates, then banks wouldn’t have to overcompensate at the long end and longer-term loans like mortgages could come down. That would put more money in the pockets of everyday Americans and help fuel all sectors of the stock market — not to mention the benefit lower rates have on valuations.
Commodities and oil prices are down, rates are coming down. That’s all good for companies and the consumer.
Energy companies as opposed to the price of oil. historically this sector has been one of the best sectors going into a rate cut. What we didn’t have in the past is a slowdown in China, that narrative should put a lid on appreciation. There may be some individual names that are exceptions.
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