Image Source: An ‘appetite for inaction’ – domionated Monday’s menu; and that’s fine. After a key significant Quarterly Expiration (last before Elections), and digesting the Fed’s ‘uber’ rate cut, you really couldn’t have expected any better to start.Given the S&P up about 20% this year (although the non-big-cap market sure isn’t), you don’t have a lot of optimism for meaningful S&P gains ‘barring’ most small-caps kicking-in, and that’s tough this time of year. For those it becomes primarily a time of accumulation during shakeouts, looking ahead to 2025.
Additionally, there are only 3 times in history that the Fed cut rates 3 times by starting with 50 basis points cuts. With two of those in economic shambles by comparison with the state of the present economy. So while we have what I’ve targeted as a ‘softish’ economic landing all year, it’s the first time the Fed has moved this much to ‘kick-off’ a downward monetary cycle, and that’s seriously interesting, as it’s more like what starts a bull market phase, rather than ends.It’s tricky because you have some economists targeting the opposite; but they tend to overlook the state of the broader market (which is slowly improving); a distinct factor implying (if earnings follow through) the avoidance of recession. It’s going to take a bit of time, and unless war widens and drags us in with an impact upon markets (which might not be negative by the way); this goes on.And of course there’s the Middle East war, where Israel is trying to demolish Hezbollah’s terrorist leadership structure without triggering a full-out war; and it is not impossible that they actually succeed. Israel doesn’t want to occupy it (Lebanon) and Lebanon knows they can’t defeat Israel; Iran knows this too. It may come to more tension however (anyway); and U.S. Marines as well as an additional aircraft carrier are on the way (after the former was sent home).. to the Mediterranean; while another carrier remains ‘near’ the Persian Gulf.
Market X-ray: most sectors are up; but generally the bigger-cap leaders. It is not what you see in capitulating or recessionary environments. Essentially the market has gone nowhere for a couple months; but that’s the point, it’s sure at the same time not crumbling, as the bears consistently contend forthcoming.We’ve seen shakeouts but quick recoveries for S&P and ; impressive for behavior in the August / September timeframe. Now we can have volatility; it can come from existential catalysts; but otherwise it’s really not a time to see clear impediments to the overall structure holding together, at least for now.And remember: while market patterns, including ‘seasonals’, may rhyme, they usually do not exactly replicate; so be open-minded for detours or diversions. And of course the Middle East war heating up is a big concern; given that the sources suggest Iran could be within a ‘week or two’ of having enough nuclear material to make a bomb or device (which means they likely already do). We’d like to believe that they know they’ll be destroyed should they try it; as Israel’s always got at least one nuclear-capable submarine in waters very nearby. The timing is interesting; as we approach the Jewish holidays within two weeks.
US Treasury market liquidity is back to pre-Covid levels; and in the historically weakest time of year. It’s not even October yet; and we have to allow degrees of concern, while pleased with how the market has performed during this time.Years ago I would point out, and must do so now, that: markets are weakest in the September-October period; but often one month is weak, not the other. So that’s an ‘ah hah’ moment as if September is weak, the S&P often bottoms in October… ‘but’ .. if September is very strong (as this ‘sort of’ is) October tends to be weak. That’s oversimplification of course; but something to be wary of.
Also, this market isn’t broadly strong outside of sector leaders; typically bigger caps. And that’s fine. Part of what we know is ‘concentration’ that dominated a bifurcated 2023 and 2024 market, and that hasn’t changed. In theory, a lower interest rate environment is particularly helpful to smaller stocks, and we’ll just have to see how well that plays out over time.Perhaps that’s why some of the most prominent economists (like Allianz) are talking of a Fed not easing further, which by the way is not likely going to be a situation; though of course, they could ‘pass’ on a given FOMC meeting should the economy appear too strong. This is why when you hear ‘bad news is good news’ it might actually be so, with regard to prodding the Fed for further cuts.
Bottom-line: some turbulence is still probable this year; probably in October as well as November’s first half, but stay-tuned on how those prospects look.Meanwhile record high S&P close today; even if is doesn’t quite feel like it.
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