Stocks extended their recent charge toward new highs as the Fed signals rate cuts are coming. The stock market action, as well as bonds for that matter, have been very strong in recent weeks and the Fed's pivot to cutting rates next month is all but official after his Jackson Hole speech on Friday. Small caps easily led the day as it doubled the return of the C-fund / S&P 500. Bonds quietly had a big day as well.
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The Fed is 4+ weeks away from finally making its first cut to interest rates since Covid started. The difference between the two - in 2020 we had an economy on the verge of collapse and a stock market in free fall. That was in March of 2020. This time the economy is slowing down modestly and the Fed is looking for a soft landing or no landing, and stocks are making all time highs. It's the labor market that may have them concerned as the unemployment rate is coming off the lows. That could be signaling some economic headwinds as the gray shaded areas below are recessions.
Chart source: fred.stlouisfed.org/series/UNRATE
So normally interest rate cuts come when the economy is struggling, so is it different this time?
I got this from Geiger Capital (@Geiger_Capital) post on X.com
* First Rate Cut - Jan 3, 2001
- S&P 500 fell ~39% next 448 days
- Unemployment rose another 2.1%
* First Rate Cut - Sep 18, 2007
- S&P 500 fell ~54% next 372 days
- Unemployment rose another 5.3%
*First Rate Cut - Sep 18, 2024
- ?
Rate cuts are certainly better for corporate earnings and when they come the trading gets very emotional. The Fed hasn't cut yet but it's basically a certainty at this point that they will cut on September 18. Coincidentally it was September 18 of 2007 that triggered a big rally when they cut. As mentioned above, here's what happened next in 2007.
And here's more examples, but of course many of these below were emergency cuts in an economy that was in trouble. This current cut is basically designed to take back the inflation triggered rate hikes.
Technical analysis looks pretty good, especially if the indices can get above their old highs, and the bulls have all of the momentum after Friday's latest rally. But I am always leery of those negative outside reversal days like we saw on Thursday. It seems like when you get one, you may get 2-3 days of retracing it, but eventually most of these lead to some trouble.
Some negative outside reversal days in recent years:
Again, the question is, is it different this time? It's always a little different, just as the rate cuts may be for a different reason than most other times, but don't dismiss history. What's the saying... Those who do not learn from history are doomed to repeat it.
Nvidia reports earnings after the bell on Wednesday. We'll get the Q2 GDP estimate on Thursday, and then the PCE Prices inflation report on Friday.
Administrative Note: It's time for the 2024 NFL Survivor Pool again. It's a very easy contest to do - just pick one winning team every week and you move on to the next week. As always, it's free. The deadline to register and make your week one pick is the start of the first game this coming Sunday. More information
The Weekly S&P 500 (C-fund) chart shows us a couple of things: One is that there is a double top and other rising resistance in the area. That wasn't a problem at some other double tops on the weekly chart, but what has been a consistent problem is Septembers.
The PMO indicator is showing a possible negative divergence in momentum as it has not been making a higher high over the March peak despite the higher high in the S&P 500.
After completely filling in the open gap near 2080 early last week, the DWCPF (S-fund) has now retraced the entire breakdown candlestick from early August. Now it may make a play for a test of the prior highs, but clearly this has come a long way in a short amount of time and some backing and filling wouldn't be the worst thing this index can do in the short-term.
The EFA (I-fund) is making new highs as the dollar makes new multi-month lows. It broke through the double top, but there is a little more rising resistance just overhead, with a lot of open gaps below.
BND (F-fund) made another closing high on Friday as the yield on the 10-year Treasury remains below 4% and in a downtrend. BND is just below the recent intraday highs so it will be vying for a breakout if it can negotiate that resistance.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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[TR]
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[TD="width: 311, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
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The Fed is 4+ weeks away from finally making its first cut to interest rates since Covid started. The difference between the two - in 2020 we had an economy on the verge of collapse and a stock market in free fall. That was in March of 2020. This time the economy is slowing down modestly and the Fed is looking for a soft landing or no landing, and stocks are making all time highs. It's the labor market that may have them concerned as the unemployment rate is coming off the lows. That could be signaling some economic headwinds as the gray shaded areas below are recessions.
Chart source: fred.stlouisfed.org/series/UNRATE
So normally interest rate cuts come when the economy is struggling, so is it different this time?
I got this from Geiger Capital (@Geiger_Capital) post on X.com
* First Rate Cut - Jan 3, 2001
- S&P 500 fell ~39% next 448 days
- Unemployment rose another 2.1%
* First Rate Cut - Sep 18, 2007
- S&P 500 fell ~54% next 372 days
- Unemployment rose another 5.3%
*First Rate Cut - Sep 18, 2024
- ?
Rate cuts are certainly better for corporate earnings and when they come the trading gets very emotional. The Fed hasn't cut yet but it's basically a certainty at this point that they will cut on September 18. Coincidentally it was September 18 of 2007 that triggered a big rally when they cut. As mentioned above, here's what happened next in 2007.
And here's more examples, but of course many of these below were emergency cuts in an economy that was in trouble. This current cut is basically designed to take back the inflation triggered rate hikes.
Technical analysis looks pretty good, especially if the indices can get above their old highs, and the bulls have all of the momentum after Friday's latest rally. But I am always leery of those negative outside reversal days like we saw on Thursday. It seems like when you get one, you may get 2-3 days of retracing it, but eventually most of these lead to some trouble.
Some negative outside reversal days in recent years:
Again, the question is, is it different this time? It's always a little different, just as the rate cuts may be for a different reason than most other times, but don't dismiss history. What's the saying... Those who do not learn from history are doomed to repeat it.
Nvidia reports earnings after the bell on Wednesday. We'll get the Q2 GDP estimate on Thursday, and then the PCE Prices inflation report on Friday.
Administrative Note: It's time for the 2024 NFL Survivor Pool again. It's a very easy contest to do - just pick one winning team every week and you move on to the next week. As always, it's free. The deadline to register and make your week one pick is the start of the first game this coming Sunday. More information
The Weekly S&P 500 (C-fund) chart shows us a couple of things: One is that there is a double top and other rising resistance in the area. That wasn't a problem at some other double tops on the weekly chart, but what has been a consistent problem is Septembers.
The PMO indicator is showing a possible negative divergence in momentum as it has not been making a higher high over the March peak despite the higher high in the S&P 500.
After completely filling in the open gap near 2080 early last week, the DWCPF (S-fund) has now retraced the entire breakdown candlestick from early August. Now it may make a play for a test of the prior highs, but clearly this has come a long way in a short amount of time and some backing and filling wouldn't be the worst thing this index can do in the short-term.
The EFA (I-fund) is making new highs as the dollar makes new multi-month lows. It broke through the double top, but there is a little more rising resistance just overhead, with a lot of open gaps below.
BND (F-fund) made another closing high on Friday as the yield on the 10-year Treasury remains below 4% and in a downtrend. BND is just below the recent intraday highs so it will be vying for a breakout if it can negotiate that resistance.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
