Sometimes the stock market does not make sense. We are currently in that type of situation. Both the NASDAQ and the S&P 500 are up a smidge thus far this week. Both indexes are pushing near the top-of-tier trading ranges. But buying volume has gone into hibernation recently on these exchanges; this is often a warning sign. But the Small Cap Russell had a great day, closing up .75%. I have mentioned for months now that mid-cap stocks are the best place to be going into 2025. But it will also be correct, in my opinion. Be patient, and read on.
Everybody is waiting on the Federal Reserve rate decision. Is it 50 basis points that the market now believes or is it 25 basis points? Let me explain several possible scenarios that you should not let yourself get sucked into. I will explain the reasoning later in this post. First, the market is at the top of its trading range. If the market sets a new high, there is a possibility it will set off technical buying (computer buying). Only buy if you plan on day trading. There will be a much better time in the near future to buy what you are looking for. Volume has been light, the institutions are sitting on their hands (that means they are doing nothing) as everybody is waiting for the election. So if a rally ensues, don’t get excited!
The market is in a damned if you damned if you don’t place!
Because of a crazy article I believe in the New York Post (remember I said these are journalists, not analysts), the market is pricing in 50 basis points tomorrow. I would LOVE to see it! But it is highly improbable that will happen! This is why. All economic numbers that have come out are OK. Not great, but not bad. Yes, there is a slowing economy, but not a stalled one or one that is sputtering. The Atlantic Fed just updated his 3rd quarter GDP survey, and it was tracking at 2.5% growth. While consumer spending has slowed. It’s still OK—not robust, but OK. So in my opinion, the fed will do 25 basis points.
And here is why it doesn’t make sense. The Federal Reserve is in a damned if you do damned if you don’t situation. Now that the market is looking for 50 basis points, anything less is a disappointment (possible selling ensues). If he does 50 basis points, the market will think, Wow, what does he know that we don’t know? Is there an economic problem coming up? (possible selling ensues) If he does the 25 basis points that I think he will do. Some will think he should have done more. (possible selling ensues)
And finally, it is very important to watch the Federal Reserve statement. If he doesn’t show a solid conviction for future cuts, the market will definitely sell-off. And if the market rallies to a new high, don’t get sucked in. It will most likely be retail trading short covering and computerized buy signals, which occur when the market enters new high territory. That rally if it occurs will be short-lived in my opinion, maybe 5-10 trading days AT MOST. If you’re a day trader, that’s OK. ride the wave, but if you are a position trader, which I often do, wait! A great buying opportunity is right around the corner.
Upstart
Yesterday was a horrible day for UPST and today it regained almost everything it lost the prior day. Volume was heavy both days. They announced a $300 million convertible senior note. This will cause some dilution in the stock. I have not yet read the complete structure of the deal. My past experience with offerings like these works out quite well for the holders of the notes. In saying that, the note holders would like the lowest price possible for conversion. That price will most likely be a market price on the day of the closing of that deal. So in the short term, it could put downward pressure on the stock. Conversely, once the deal is finished, it relieves that downward pressure because they want the stock higher to convert and cash out. I’m not worried. If they have the ability to raise that amount, I have to assume the buyers think the future outlook for the company is as good as or better than I think.