Buy the Dip: “Fed has the Market’s Back”
$DIA, $SPY, $QQQ, $RUTX, $VXX
Investors should take advantage of this market pull back, the deepest in 3 years to position for a year-end rally as fears over Fed Hawkishness are likely overdone.
While catalysts cited behind the Southside action ranged from peak earnings growth to trade tensions with China and midterm elections, a Key trigger came from the bond market.
Bond yields spiked and stocks fell as recent comments from Fed officials suggested they are willing to raise interest rates above Neutral, or to marks that neither hold back nor fuel economic growth,
Worries that the Fed would dismiss the market’s impact on the economy are misplaced.
A Goldman Sachs study shows the latest equity decline has contributed to a tightening in financial conditions that is the equivalent to a rate hike of 25 bpts.
We see the biggest risk as a loss of confidence across other asset classes and this has not happened.
And, if it did, we expect the Fed and the US Treasury department to begin intervening, meaning that the Fed ultimately has the market’s back. That is what President Trump is signaling with his criticism of the Fed’s jawboning.
The S&P 500 has fallen in all but 4 sessions this month as more than $2-T has been erased from equity values since it marked all-time highs in September.
Down about 6% in October, the index is poised for the worst month since September 2011 if that holds.
While the benchmark index struggles, other assets such as high-yield junk bonds are showing little signs of stress, a divergence that has historically resolved in the favor of the latter.
In another sign that the Southside stock action may be over, the Cboe Volatility Index (VIX), a gauge of costs of S&P 500 options, has made lower highs in contrast with fresh lows in stocks.
The VIX usually moves in the opposite direction of the S&P 500, and its ability to stay below its 11 October highs suggested that investor sentiment is improving.
What we have been hearing recently about the stock market has been negative, correction, Bear market beginning, and the like. However we are seeing technical divergences developing, which put us here at HeffX-LTN in believing that we will see a reversal of sentiment and a strong rally into year-end.
Hence, Buy the Dip!
Wednesday, the major US stock market indexes finished at: DJIA -608.01 at 24583.42, NAS Comp -329.14 at 7108.59, S&P 500 -84.59 at 2656.24
Volume: Trade on the NYSE came in at 1.1-B/shares exchanged
- NAS Comp +3.0% YTD
- S&P 500 -0.7% YTD
- DJIA -0.6% YTD
- Russell 2000 -4.4% YTD
HeffX-LTN’s US Major Stock Market Indexes Technical Analysis