Bearish. September is the worst DJIA, S&P 500, NASDAQ, and Russell 2000 month of the year by average performance. Average declines range from –0.5% to –0.7%. Midterm-year Septembers have been mixed notwithstanding a modest improvement in rank. DJIA has declined in 11 of the last 18 midterm-year Septembers. End-of-quarter window dressing and rebalancing has contributed to some nasty, late-September selloffs.
Recession? Two consecutive quarters of GDP decline and a partially inverted Treasury yield curve suggest a recession. Even though debate officially continues, the second estimate of Q2 GDP was still negative with a minor positive revision. Housing is cooling and signs of labor market weakness are also appearing as additional companies announce plans to slow or stop hiring or outright cut head count. Signs of moderating inflation exist but headline readings of CPI and PPI remain elevated.
Resistance Hit. DJIA, S&P 500 and NASDAQ all blazed past their respective early June highs only to fail to reclaim and in the case of DJIA hold their 200-day moving averages. All three have retreated below the June highs and are now dancing with support at their respective 50-day moving averages around DJIA 32000, S&P 500 4000, and NASDAQ 11900. Should that support fail then we believe the June lows are in play. A decisive move back up and through their 200-day moving averages would be bullish in the near-term.
2.25 – 2.50%. Fed representatives did not tell the market what it wanted to hear at Jackson Hole or since. It would seem the hope of a less hawkish Fed, which contributed to the summer rally, is being increasingly questioned. The Fed has aggressively increased its target rate this year however CPI remains well above the Fed’s stated 2% target. QT (quantitative tightening), currently around $47.5 billion per month is scheduled to double to $95 billion on September 1. This could add additional upward pressure on interest rates.
Bearish. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 45.1%. Correction advisors are at 25.3% while Bearish advisors numbered 29.6% as of their August 24 release. Bulls have outnumbered bears for five weeks now, but outright bullish sentiment remains rather subdued as the combination of bears and correction still outnumber the bulls. Until the market clearly demonstrates a direction again, sentiment is likely to remain essentially neutral.