Weekly Market Analysis: Recap and Forecast. The Week of August 19, 2024

U.S. stocks ended the week higher, with the DJIA up 1,162.22 points, or 2.9%, during the five-day stretch to 40,659.76. The S&P 500 rose 3.9% on the week, while the Nasdaq gained 5.3%. All three indexes recorded their largest weekly percentage gains since the week ending Nov. 3, according to Dow Jones Market Data. We saw that the market was at peak optimism in July. Then August comes as one of the short-lived growth scares with a large part of the price action from closing of trades across hedge funds including commodity trading advisers (CTAs) in futures contracts, commodity options and swaps and other players were forced to rapidly unwind trades. Starting with Fed-funds futures traders briefly priced in the possibility of an emergency August rate cut and ramped up bets that the Fed would cut by 0.50%, rather than a 0.25% at their September meeting. As stocks recovered and fears of an economic downturn eased, traders unwound bets on an emergency rate cut and now see the Fed as most likely to cut by a 0.25% in September, followed by 0.25% cuts in November and December, as well.

Last week price action meant that labor data is “in the driver’s seat,” taking over from inflation as the most important market driver because labor data serves as the best proxy for overall economic activity. The Fed has a dual mandate in maintaining both price stability and full employment. As we witnessed last week, a better-than-expected reading on weekly initial jobless claims helped lift stocks, as did a handful of other positive economic readings like retail sales numbers and consumer sentiment. According to some Wallstreet experts “we would not be surprised to see another growth scare before the end of the third quarter, which suggests defensive groups will continue to outperform over the near term. Past that, we see a robust, growth-stock-led rally into the end of 2024.”

This week, all eyes are on Fed Chair Jerome Powell at Jackson Hole annual economic symposium. Powell’s speech could threaten the stock market’s rebound from the selloff earlier this month, as the more the markets rally in advance, the more fragile the markets might be. That is especially a concern as Fed-funds futures traders are now pricing in rate cuts from the Fed at each of its three remaining meetings this year, starting in September. Unless Powell comes out and say that “given the deterioration in the unemployment rate, it may make sense that we do start to cut rates a bit sooner,” then the market may react differently. But that may be setting the bar too high. Powell may just simply say that “inflation is moving in the right direction and the Fed may consider further rate cuts if necessary and will maintain a modest pace until the data shows otherwise. Powell may also say that they might want to adjust interest rates a bit lower, but they don’t need to slash them at every meeting like some analysts expect.

Besides Powell’s speech at Jackson Hole, we also have FOMC July’s meeting minutes will be release on at 2pm on Wednesday, as well as U.S. leading economic indicators released at 10am on Monday, Initial jobless Claims data at 8:30am and Service and Manufacturing PMI numbers at 9:45am on Tuesday morning.

Last week rebound indicated extreme market volatility as traders adjusted their expectations of how the Fed may cut rate. $SPY broke the $530-$535 range, blew through $546 PT and closed the week at $555. Meanwhile, $QQQ also rocketed through its $445-$455 range passed $466-$468 PT and closed at $475. Currently $SPY is in $550-$555 range. Holding $555, it may trade to $560 and possible retest all time high at $565. If it gets rejected at $555 and cracks below $549, it can trade back down $540 and $535. At the same time, $QQQ is in $470-$475 range. Holding over $475, it can trade to $485, $490 then $495-$496. If it gets rejected at $475 and cracks below $474, it may trade back down to $465-$466 area, then $460-$458.

This week, except Tuesday, every day is a possibility of volatility on high. We will be focusing on taking some indexes and their ETF’s and some earning trades, coupled with our FAANG’s stocks, and managing our weekly trades, possible rolling over for continuation depending on how the market respond on Friday. Have a wonderful week and let’s capitalized. Namaste!!!