Weekly market outlook 9/22
Hello traders,
Last week, Powell enacted a 50bps rate cut, which triggered pronounced market turbulence. The immediate response was an initial surge, followed by a gradual decline, only to be succeeded by a ferocious rally during the Globex session, reminiscent of a classic "face-ripper."
But first, select recap of last week.
Thursday was a scratch day for me as the model was unable to calculate levels due to out of distribution globex moves. The model has been fixed since then
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Moving on,
This week presents a packed agenda of monetary commentary and critical economic data releases, creating a fertile ground for potential market volatility. The slate of Fed speakers, with Jerome Powell making another appearance, suggests that policymakers will be closely watched for any hints of future policy direction. Alongside the speeches, a series of pivotal economic indicators will provide fresh insight into the health of key sectors of the economy.
Monday kicks off with both Services and Manufacturing PMI, offering a snapshot of business activity across two vital sectors. On Tuesday, Consumer Confidence data will reflect the public's economic sentiment, a key determinant of future spending patterns.
Midweek, the focus shifts to housing, with New Home Sales data on Wednesday, a critical indicator of the real estate market’s strength. Thursday stands as a veritable flashpoint, with a deluge of major releases: Q2 GDP will provide the broadest assessment of the economy’s growth trajectory, while Jobless Claims offer a more immediate gauge of labor market conditions. Durable Goods Orders and Pending Home Sales will also be closely scrutinized, reflecting industrial demand and housing market momentum.
Friday rounds out the week with two key inflation and sentiment indicators: Core PCE Inflation, the Fed’s preferred measure of price stability, and Consumer Sentiment, which could provide further insight into spending and economic resilience in the face of ongoing uncertainty.
In short, this week’s barrage of speeches and data could set the tone for markets in the near term, making it a crucial period for investors and policymakers alike.
This market activity is unfolding at an unusual moment, with the S&P 500 near historic highs, splitting market sentiment between optimistic bulls and frustrated bears. With the rally to all-time highs, most puts are now deep out of the money, and calls are in the money. If a selloff begins, market makers long on hedged calls may be forced to sell, potentially amplifying any downturn.
Compounding the situation, the week after September's triple witching is historically one of the weakest of the year. Over the past few decades, this period has been a consistent source of market declines, with the post-expiration week showing losses in the majority of the last 34 years. The typical explanation for this trend is end-of-quarter portfolio restructuring, where managers trim summer holdings and reposition ahead of the fourth quarter.
Historically, the fourth week of September has shown average losses since 1990:
- Dow Industrials: -1.09%
- S&P 500: -1.06%
- Nasdaq: -1.06%
This cyclical weakness is likely driven by portfolio adjustments, as market participants gear up for the final quarter of the year.
Levels for the week:
Subscribers are urged to use the tradingview indicator to plot the levels.