Market at a Glance

Market at a Glance - 8/25/2022

By: Christopher Mistal

August 25, 2022

Seasonal: Bearish. September is the worst DJIA, S&P 500, NASDAQ, Russell 1000, and Russell 2000 month of the year by average performance. Average declines range from –0.5% to –0.7%. Midterm-year Septembers have been mixed notwithstanding a modest improvement in rank. DJIA has declined in 11 of the last 18 midterm-year Septembers. End-of-quarter window dressing and rebalancing has contributed to some nasty, late-September selloffs.

Fundamental: Recession? Two consecutive quarters of GDP decline and a partially inverted Treasury yield curve suggest a recession. Even though debate officially continues, the second estimate of Q2 GDP was still negative with a minor positive revision. Housing is cooling and signs of labor market weakness are also appearing as additional companies announce plans to slow or stop hiring or outright cut head count. Signs of moderating inflation exist but headline readings of CPI and PPI remain elevated.

Technical: Resistance Hit? DJIA, S&P 500 and NASDAQ all blazed past their respective early June highs only to fail to reclaim and in the case of DJIA hold their 200-day moving averages. All three have retreated to right around the June highs. Previous resistance can become support. Should that support fail then their respective 50-day moving averages would become the next key level to watch. Currently these levels are around DJIA 32000, S&P 500 3990, and NASDAQ 11900 and rising. A decisive move back up and through their 200-day moving averages would be bullish in the near-term.

Monetary: 2.25 – 2.50%. Will Fed representatives tell the market what it wants to hear this week at Jackson Hole? We will find out soon enough, but it would seem the hope of a less hawkish Fed, which contributed to the summer rally, is being increasingly questioned. The Fed has aggressively increased its target rate this year however CPI remains well above the Fed’s stated 2% target. QT (quantitative tightening), currently around $47.5 billion per month is scheduled to double to $95 billion on September 1. This could add additional upward pressure on interest rates.

Sentiment: Neutral. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 45.1%. Correction advisors are at 25.3% while Bearish advisors numbered 29.6% as of their August 24 release. Bulls have outnumbered bears for five weeks now, but outright bullish sentiment remains rather subdued as the combination of bears and correction still outnumber the bulls. Until the market clearly demonstrates a direction again, sentiment is likely to remain essentially neutral.