Weekly Market Watch
Topics:
Market Outlook - Key Market Topics to Know This Week
Key Market Levels
This Week / What We Are Watching
Market Outlook:
The S&P 500 fell 2.9% last week, its third consecutive week lower after the Federal Reserve said it doesn’t expect as many 2024 rate cuts as previously thought and therefore added to investors’ worries over higher rates for longer.
The benchmark is now down -4.2% for the month-to-date, however the S&P 500 is still solidly in positive territory for 2023 with a year-to-date climb of more than 12%.
Despite worries over higher interest rates in the short run, the Fed is still very close to finishing its rate hike campaign that began last year if it isn’t already, which in turn has traditionally been a huge catalyst for outsized bond and stock fund returns (see chart below). Our partners over at First Trust put together this chart and data showing how stocks and bonds do following a peak in the Federal Funds rate on a forward basis:
HISTORICAL TOTAL RETURNS OF BONDS AND STOCKS FOLLOWING THE FED’S TIGHTENING CYCLES
Bonds have exhibited positive total returns 100% of the time over the 6 Month, 1 Year, 3 Year and 5 Year time periods following each of the last seven Fed tightening cycles.
Stocks have only returned positive results 74% of the time with similar returns to bonds on average and with more volatility.
Fed September 20th Meeting Recap:
- There was no interest rate hike, but the committee noted the potential for one more by year end. Many market participants though believe the Fed is likely done with any further hikes in the current cycle.
- The Fed is now projecting fewer rate cuts in 2024. Back in June, they projected the 2024 rate at 4.6%, implying 1 percentage point worth of cuts. They’re now expecting just 0.50 percentage points of cuts, taking the 2024 rate to 5.1%.
- Also, the committee’s projected 2025 rate climbed to 3.9% from 3.4% previously. This comes as the committee noted inflation remains elevated.
Check in on Gas Prices (Chart) –Oil has soared to $90/barrel today, a rise of about 30% since late June. We can thank supply curbs from OPEC+ members Saudi Arabia and Russia, but also brighter outlooks in the two biggest economies, the US and China. From AAA: “The national average for a gallon of gas hit what may be 2023’s peak price of $3.88 earlier this week, only to slide a few cents in the following days. Today’s average is $3.86 – a penny more than a week ago.”
Government Shutdown Likely – Congress is at it again following June’s debt-ceiling drama that ended with a last-minute deal to raise the debt ceiling. Now it’s the budget that they are failing to come to an agreement on. Here are some notes from LPL on the matter:
- In the present political climate, we feel there is around a 75% chance of a government shutdown happening with the divisions that exist between factions in the House of Representatives, not to mention the divide between Senate Democrats and Republicans.
- We believe it’s unlikely an agreement will be reached by the deadline at midnight, September 30.
- As in past shutdowns, we do not expect the Washington drama to be a market moving event.
(Source: LPL Financial, 9/26/23)
Market Support & Resistance Levels:
The next level of resistance to watch for the S&P 500 on the upside is at 4,600.
The next levels of support to watch for the S&P 500 on the downside are at around 4,300 and 4,200.
This week / What We Are Watching:
Monday: --
Tuesday: New Home Sales (Aug.), S&P Case-Shiller Home Price index (Jul.), Consumer Confidence (Sept.)
Wednesday: Durable-goods Orders (Aug.)
Thursday: Weekly Initial Jobless, Q2 GDP (revision)
Friday: PCE Inflation Report (Aug.), Consumer Spending and Personal Income (Aug.)