The stock market faced another test last week as the bearish sentiment was quite high even though some sort of rate cut was almost guaranteed. From the week’s low the S&P 500 closed up 100 points or 1.7% with the Inveco QQQ
Invesco QQQ Trust
Many were still concerned as some pointed to high valuations like Robert Pavlik, senior portfolio manager at Dakota Wealth Management who commented that the “upside from just lower rates is somewhat limited.” Others worry that fundamental measures like price-to-book and price-to-sales are also now well above the past historic averages.
From a technical perspective, I have found these measures to often be unreliable. According to Ryan Detrick, chief market strategist at Carson Group “The Fed has cut rates 20 times since 1980 when the S&P 500 was within 2% of an all-time high. He found that the index has been “higher a year later every time, with an average gain of 13.9%”.
The recessionary fears are still keeping many investors out of stocks. The analysis of the market internals and the advance/decline lines ahead of the FOMC meeting projected new highs.
The slightly improving bullish sentiment at the start of this week was dampened when the Consumer Confidence Index on Tuesday came in at 98.7 down from August’s six-month high of 105.6. This was the largest decline since August 2021.
A deeper dive into the results revealed that the “drop in confidence was steepest for consumers aged 35 to 54. As a result, on a six-month moving average basis, the 35–54 age group has become the least confident while consumers under 35 remain the most confident.” The under 50K segment showed the largest drop in sentiment while the 100K group remained the most confident.
It has been my view, based in part on the chart of the University of Michigan Consumer Sentiment, that the consumer’s outlook for the economy will improve as we get closer to the election. The latest report comes out this Friday and I am not sure that this one data point is significant.
Also, it is interesting that the Conference Board noted that The cutoff date for the preliminary results was September 17, 2024. Therefore some part of the survey results were tallied before the FOMC cut rates.
The weekly outlook for the stock market did not change after last week’s action or the price action early this week. The outlook for growth stocks has improved as the Invesco QQQ Trust (QQQ) is up 1% so far this week. The August high at $484.86 has been exceeded. The R1 monthly pivot resistance is at $499.36 and the July high is at $502.81.
The Nasdaq 100 Advance/Decline line is still in a strong trend after it dropped back to support, line c, early in the month. It is very close to last week’s new high. More importantly, the relative performance RS now looks closer to completing its bottom formation after it recently broke the downtrend, line e. A move in the RS above the August high should signal that the QQQ is again leading the S&P 500.
The growth/value ratio chart of the iShares Russell 1000 Growth (IWF) versus the iShares Russell 1000 Value (IWD closed above its 20-week EMA last week (see arrow). This analysis has been very helpful in determining whether one should favor growth or value stocks as well as ETFs.
IWD
The bullish divergences in the MACDs were a positive sign for growth stocks in late 2022 and early 2023 contrary to the overall market sentiment. Currently, the signals are not as clear as the MACDs are still negative.
There are some positive signs from some of the tech sectors as charts of some semiconductor stocks look quite strong. I am still on alert for a 1-2 day sharp pullback as we move into October but think it will be a buying opportunity.