S&P 500 Bulls Hold Edge Despite Inflation, Weak Jobs, and Geopolitical Risks

The fanfare that has preceded this week’s upcoming has been uniquely extraordinary.

Don’t let the bullish market magicians’ patter distract you from the real outcome.

The bulls have a secret. They don’t really want the bears to know what’s happening!

The bears are right…

… is stubbornly elevated,
…The is weakening,
…Tariffs are a drag on economic growth,
…The deficit is at record highs and growing,
…Geopolitical tensions with the world’s largest nations are deteriorating, and
…The wars in Ukraine and the Middle East aren’t getting better.

That’s just the beginning of the list of problems that could or should lead to headwinds for stocks.

Yet the market marches higher.

Irrational bulls, or overly anxious bears?

Both

However, the bulls are winning for some very straightforward reasons.

The FOMC meeting alone isn’t going to change these reasons, so this week we’ll look at why it will be easy to think that it may.

Based on some measures (i.e. the chart below), tampering the bears’ resolve may prove difficult. As the market marches higher, the bearish camp has become more popular.

Do the bulls know something the bears don’t?

This week’s Outlook summarizes the debates that have defined the all-important Fed rate decision this week, and then provides the perspective of a few straightforward reasons why the bears are the bulls’ best frenemy right now.

More importantly, we’ll discuss why this is good news for your portfolio (unless you’re bearish).

Summary: Markets continued to push to new highs with strong performance in , semiconductors, gold miners, emerging markets, and Bitcoin, while volatility stayed subdued and both growth and value hit fresh highs. Offsetting this risk-on strength, leadership breadth weakened with retail, homebuilders, and parts of the Modern Family lagging, internals diverging from price, the risk gauge still reading risk-off, and metals flashing a potential cautionary signal.

Risk On

• Markets pushed higher on the week between +0.26% for to +1.80% for QQQ and most of them have closed on yearly or all-time highs. (+)
• The majority of sectors were up on the week, led by gold miners and technology/semiconductors. Despite the drop in rates and projections of fed easing, homebuilders were down almost -2.8% for the week. Retail down as well. Sector results are a bit murky but maintain a risk-on footing. (+)
• New high new low ratio is looking positive in the short-run with a bit of a weakening neutral long-term signal. A weak-risk on reading. (+)
• The color charts (moving average of stocks above key moving averages) are marginally positive for IWM on shorter timeframes with a strong longer-term trend. (+)
• Volatility continued to languish at low levels as the market moved to new highs. (+)
• Both growth and value are in bullish phases and made new highs this week. (+)
• Emerging markets exploded on the week with all foreign equities maintaining strong performance. Emerging markets likely got a lift on commodity prices, a potential cautionary note. (+)
• Bitcoin had a good week, recovering its 50-Day Moving Average and back into a bullish phaseand entering an excellent seasonal period. (+)
• September is historically the weakest month for seasonal performance. Though we are bucking that trend so far and the negative September trends tend to occur in years where we enter September in a downtrend or under key moving averages. Reference last weekend’s newsletter. (+)

Neutral

• Volume patterns were neutral with fairly equal amounts of accumulation and distribution days over the last 10 days. (=)
• Market internals remain positive but are diverging from price action as market hits new highs and internals fall closer to mid-range. (=)
• Four of the six members of the modern family were down on the week and lagging the based on our leadership indictor on a short-term basis, though Semiconductors exploded higher to new all-time highs. (=)
• Rates continue to project that the fed will cut in the upcoming meetings with the 7-10 year in a strong bull phase and confirming a breakout above its 200-Day Moving Average for the first time since December of last year. The steepening of the yield curve could be a potential warning sign. (=)

Risk Off

• The color charts (moving average of stocks above key moving averages) on a short and intermediate term basis for, the S&P 500 is negative, while the longer-term timeframe remains positive,and the is negative in all timeframes (-)
• Risk gauge maintained its risk-off reading. (-)
• and metals, including silver, has been explosive. (-)