The recent 8-day rally has been impressive by the numbers. Today, the winning streak was snapped. But don’t be fooled; volume was not impressive the majority of those days. The big event this week is the Federal Reserve in Jackson Hole and what he will say. The market will hang on to every word the Federal Reserve says. I am in the camp; it will be a non-event (expect a ¼ point cut in September).
So where does the market go in the near term?
The market is walking on eggshells! Institutions are looking for any foolish reason to take money off the table before their fiscal year ends in October. The correction isn’t over. The market will correct somewhere around the previous correction (S&P 500 5,180 and NASDAQ 16,200) before the market sets a new high again, in my opinion.
Here are several foolish reasons the market will have for selling off.
- Rate cuts into weakness. If the market perceives that the Federal Reserve is cutting rates to spur the economy (because the recession is near), the market will sell off. Although a slowdown is here, the short-term outlook (into the end of the year) is OK. Right now we are OK. The Atlanta Fed as of August 7th predicted growth of 2.9% If a recession occurs it is more likely to happen somewhere between March 2025 and August 2025.
- The market is hanging foolishly on every job report. If they don’t like a report, expect a selloff.
- Any slight uptick in inflation. It’s not a matter of if it will happen; it’s a matter of when. Any inflation uptick now would be transitory and I am very strong on that opinion.
- The Middle East is in turmoil. Any expansion of the war would cause a hard temporary sell-off. But with the election right around the corner, it seems the current administration is doing everything possible to avoid any expansion in the war.
- Most important! The election brings huge uncertainty! Institutions and uncertainty are arch-enemies. Institutions hate uncertainty. In this case who is going to be in the white house? Market volatility usually begins after Labor Day during an election year.
We are entering a Caveat Emptor stock market.
BUT
As soon as it looks like there is going to be a clear winner in the elections, volatility will diminish.
The bottom line short short-term 1-3 months most likely going to cause a lot of emotional stress if you are fully invested. There are going to be some great buys on some great stocks in this period. I plan to buy during this time. As I expect a very nice year-end rally.