The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
End of Month
August finished quietly but with a down session. Headlines and data weren’t very interesting but the attack on Iran pushed crude up. Yields climbed as well. Whether crude influenced yields is debatable. Regardless, both those markets influenced stocks negatively and the S&P 500 spent the bulk of the day down about 35 points. Capital flow was light again, 84%.
The S&P finished August up about 2.6%. This brings the year-to-date appreciation to about 12.3%. It’s a good year, so far, for the longs. Additionally, the market is only about 130 points below the all-time highs and the bull market looks and feels intact. From a chart standpoint, the last three weeks look like digestion and further upside seems probable. The problem is that the Fed significantly changed its thinking in August and it doesn’t seem like the stock market is all that concerned.
I think it should be. The Fed Funds futures market is pricing at Fed hike of 25 bips with 65% probability. This coming hike may be anticipated by the rates market and maybe even stock investors are expecting a hike but the stock market isn’t worried about the ramifications of a Fed hike.
The stock market doesn’t seem to worry about a hawkish Fed path affecting valuations nor economic growth. Maybe one could overlook a single hike on those fronts but the Fed is very unlikely to hike once, and only once. The stock market expects the Fed to feather the brakes. It is more probable that the Fed hits them pretty hard.
September is seasonally the worst month for the longs. The FOMC decision is September 16th. It sure seems like the bulls have their work cut out for them.
See you tomorrow.
-Mike
Visdom Market Commentary
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