Improving. October is the last month of DJIA and S&P 500 “Worst Six Months” and NASDAQ’s “Worst Four Months.” Twelve post-WWII bear markets have ended in October and seven were in midterm years. October is the #1 DJIA and S&P 500 month in midterm years, #2 for NASDAQ. STA Seasonal MACD Buy signal can trigger any time after the close on October 3 this year.
Recession? One bright spot is the labor market where official metrics remain reasonably firm. GDP was negative in Q1 and Q2 and the Atlanta Fed GDPNow estimate for Q3 is just 0.3% as of its September 27 update. Surging mortgage rates are cooling the housing market and price declines are popping up. Consumer sentiment remains depressed as inflation and Fed rate hikes eat away at spending power. Energy prices have retreated but remain elevated while corporate earnings are slipping with several notable warnings from FedEx, GE, and Ford.
New Lows. DJIA and S&P 500 have closed below their respective June lows. NASDAQ and Russell 2000 have not. The bear market is not over yet. 50- and 200-day moving averages are all in decline and remain distant. The market’s next move will likely depend on where NASDAQ goes. If its June closing low holds, that would be a positive and encouraging. However, if the opposite occurs then further declines are increasingly likely.
3.00-3.25%. Persistent inflation has pushed the Fed to take aggressive action. A blunt speech by Chairman Powell at Jackson Hole was the first warning to the market and last week’s meeting solidified their intentions. The Fed increased its key rate by 0.75% and indicated similar sized increases are likely at its next two meetings. Their apparent objective, based upon projection materials, is to have the fed funds rate between 4% and 4.5% by the end of this year. The brisk pace of rate increases compared to other major central banks has the U.S. dollar at multi-year highs and Forex market volatility climbing. The Fed may soon need to intervene in Forex markets.
Slipping. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 25.4%. Correction advisors are at 40.3% while Bearish advisors numbered 34.3% as of their September 28 release. Sentiment has been mixed and largely responding to the markets moves. Bullish advisors peaked in mid-August just as the market was topping out. When they bailed on the bullish camp, they went to join correction advisors. More bearish advisors would be a welcome sign as historically the best broad opportunities for new long positions have been at higher levels.