Markets should remain supported into the Fed meeting, then followed by consolidation in the days after. Major indexes have been challenging to trade over the past several months as we have witnessed an unprecedented amount of Fed intervention. We forecasted a correction to take place in the third quarter ranging from 5%-20%. Markets bottomed during the first few days of October with the major indexes pulling back approximately 8%. The majority of stocks pulled back as much as 20% while the mega-tech giants received targeted buying to prop up indexes and keep major indexes more elevated. November is expected to see plenty of volatility.
Markets had large amounts of FOMO buying with the S&P 500 extending its winning streak to seven days and the Dow scoring a new all-time high for the first time in over two months on Wednesday. Bullish earnings reports, the slowing rally in rates, and the progress towards an infrastructure deal all supported the market as well. The emergence of a new COVID variant in the U.K. coupled with surging case numbers in countries like Russia and Romania also put pressure on the most virus-sensitive industries – something to pay attention to in the coming weeks.
The week’s economic reports leaned bearish – particularly in the manufacturing sector – but the job market is showing signs of strength into a seasonally bullish period. The weekly number of new jobless claims hit another pandemic-era low below the key 300,000 level, increasing the likelihood of a strong October jobs report. The Philly Fed Index, the Markit manufacturing PMI, Industrial Production, Building Permits, and Housing Starts all missed amidst the intensifying strain on supply chains. The Housing Market Index, Existing Home Sales, and the Services PMI were the only positive surprises in the face of rising mortgage rates.
The short-term technical picture remains bullish across the board, even in the case of the relatively weak Nasdaq. But the major indexes are still facing strong resistance near their record highs. The S&P 500, the Dow, and the Nasdaq are now each above their 50-day and 200-day moving averages. However, the rally in small-caps also slowed down this week as the Russell 2000 remains stuck below the 2,300 level. Meanwhile, The Volatility Index (VIX) almost reached its pandemic-era low this week thanks to improving investor sentiment.
JP Morgan, along with several other banks, have come out with a bullish forecast for major crypto coins into year end. The stronger the rally in Bitcoin and other large cap coins, the larger the rally in the altcoin sector will be as rotation occurs.