Eyes and Ears on the Fed
Everybody’s eyes and ears will be on the Federal Reserve meeting this week as the expected rate cut should be announced. Rate cuts probably should have been started earlier this year since the rate of inflation has slowed to the point where it is under control and should continue to slow. August unemployment stayed the same from the July report, but year-over-year unemployment is up from 3.8% to 4.2% so there’s enough evidence to cut rates at least .25%. More than a few bankers and economist are suggesting that the cut should be .50% since the Fed is late in starting the cuts, but the Fed does not want to be seen as panicking so look for a .25% cut to be announced on Wednesday.
Going Sideways Till We Aren’t
Looking back, what has been the effect of the Fed’s decision-making over the last two months? Below, a daily chart of the S&P 500 tells the story. Everyone knew that a rate cut was coming this year; only the timing was a mystery. When the Fed met this summer, the S&P 500 was at an all-time high, but the lack of a rate cut contributed to the pullback that ended in early August. At that time, the Fed indicated that the rate cut would be coming in September, so the only question was how big would the cut be. Since early August the market has returned to the summer highs, pulled back, and has now returned just below the high-water mark. This week’s Federal Open Market Committee (FOMC) meeting should determine if we breakout of this sideways condition and continue to the upside.
Positive Technicals
The Relative Strength Indicator (RSI) in the bottom panel is over 50 and sloping up which is a positive for the upward price trend. The only lingering concern is the gap down at the 5025 price back in May (blue circle). Gaps have a tendency to get filled which means the S&P price would have to drop back to 5025 in order to fill that gap which is a 10% pullback. This is a common occurrence, but the timing of it is unpredictable, and, based on current circumstances, it doesn’t seem likely at this time.
Keep A Long-Term Perspective
Looking at this in terms of a longer time frame, we are heading into the 4th quarter of the year soon, and that is usually the best quarter of the year. There will be some good entry points to put cash to work in the coming weeks, but don’t worry if your timing is off somewhat. We still have a few weeks of September left, and that can be unpredictable and volatile based on market history. As long-term investors, be careful not to get too caught up in the short-term gyrations of the market that are governed by option traders and day traders.
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This post is for informational purposes only. It is not intended as investment advice as each person’s financial situation is different. I strongly recommend working with a financial advisor who can deliver current information to you quickly and offer help with sorting through the various investment options. Bret Wilson is a Financial Advisor with Wilson Investment Services, based in Rockwall, Texas.
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