After a week of strong performance, stocks are hoping to maintain their momentum in the upcoming holiday-shortened week. The Dow Jones Industrial Average and the Nasdaq Composite had their best week since July, while the S&P 500 posted its best weekly performance since June. This surge in performance can be attributed to the return of risk-on sentiment in the market. The Dow closed the week with a gain of more than 1%, the S&P 500 advanced more than 2%, and the tech-heavy Nasdaq Composite added more than 3%.
Investors are feeling optimistic as some technical indicators suggest that the bullish momentum could continue. One such indicator is the breaking of major indexes above their respective 50-day moving averages, indicating an improvement in short-term momentum. Sam Stovall, chief investment strategist at CFRA, believes that this upward trend could continue in the near term despite potential challenges in the market.
While stocks are hopeful for continued growth, there are several challenges on the horizon. September is historically known as the worst month for markets, leading to increased caution among investors. Additionally, there will be major inflation data to digest before the Federal Reserve’s September policy meeting. The central bank will be convening for a two-day meeting starting on September 19, with their interest rate decision scheduled for September 20.
The slowdown in the economy has led some market experts to urge investors to stay the course. Ryan Detrick, chief market strategist at Carson Group, believes that in order for the Federal Reserve to consider halting rate hikes, they will need to see further signs of economic slowdown. The jump in the U.S. unemployment rate has led traders to bet on the Fed pausing rates in its September meeting, with an increased chance of rates staying the same in November as well.
Watching Inflation Data
To gauge the Fed’s rate decision, investors will need to closely monitor upcoming economic reports, particularly inflation data. The August consumer price index is set to release on September 13, followed by the producer price index for last month on September 14. The personal consumption expenditures price index, which is the Fed’s preferred inflation measure, will be released on September 29. Ultimately, the trajectory of inflation will heavily influence the Fed’s rate decision.
Despite September being historically weak for equities, there are still signs that the recent momentum in the market could continue. The S&P 500 has typically seen its worst average return in September, making it the only month where the broader index declines more often than it rises. However, there have been exceptions to this trend, such as in 2010 and 1954. Max Kettner from HSBC suggests that a significant move to neutral in their short-term sentiment indicator could indicate an opportunity for U.S. stocks and risk assets. Bank of America strategist Savita Subramanian also believes that the bottom is likely in for earnings, further supporting the notion of continued growth.
Although volatility and potentially negative headlines are expected in August and September, market experts believe that investors should remain prepared for these challenges. Ryan Detrick from Carson Group advises investors to brace for these situations, knowing that a strong economy will bring better times ahead. In fact, Detrick believes that the S&P 500 could reach new highs by the end of the year, once it overcomes its seasonal weakness.
Week Ahead Calendar
The upcoming week will be holiday-shortened, with a closure on Monday for the Labor Day holiday. Investors will keep an eye on the release of July factory orders data on Tuesday. Additionally, PMI reports will be released throughout the week, providing further insights into the state of the economy.
Stocks are hoping to maintain their momentum despite the challenges that lie ahead. While September is known as a historically weak month for markets, there are indications that the recent bullish momentum could continue in the near term. By closely monitoring inflation data and staying strong amid potential seasonal weakness, investors can navigate the market with caution and optimism.