A businessman works inside a post on the floor of the New York Stock Exchange (NYSE), August 2, 2021.
Brendon McDermide | Reuters
Following the recent turmoil, markets are likely to close in the last week of the third quarter with another fight of volatility.
The stock posted big moves last week. First, fears of a financial transition from Chinese developer Evergrand sent stock skidding Monday. Those losses were reversed by Thursday, when the market exploded further. The S&P 500 and the Dow Jones Industrial Average were positive for the week, while the Nasdaq was flat.
“I think the volatility in this market is not over yet,” said Sam Stoval, chief investment strategist at CFRA. “Of course September is doing what it is doing normally. It disappoints investors.”
The three major stock indices are up more in the third quarter.
Strategists are talking about how market trading could be the most significant development next week, following the wild swing in stocks and the rapid rise in treasury yields over the weekend. The 10-year rate rose to 1.46% on Friday after trading at about 1.31% on Wednesday.
The S&P 500 was down about 1.5% for September.
“We’re getting longer at the teeth. Technical indicators are pointing to the distribution. We’re seeing prices rise, widths widening. You’re seeing sentiment roll over,” Stoval said. Many stocks are trading below their 200-day moving average.
October is a ‘seismic’ month
“I think October will be true for itself, which is a very volatile month. The volatility of October is 36% higher than the average of the other 11 months of the year,” Stoval added. “There is more volatility and you have more pullbacks, corrections and beer markets that start or end the month. It’s a seismic month.”
Wealth management firm Wellington Shields has warned that many stocks have fallen below their 200-day moving average, which is negative for the market. According to the firm, only 59% of stocks on the New York Stock Exchange are up, or on an up trend. The 200-day moving average is the average of the last 200 closing prices of a stock or index, and it is seen as a momentum indicator.
“The rule is that when the number of these 200 days goes down from 80% to below 60%, it usually goes down to 30%. With just a few percent of the market, that’s a concern, “Wellington said in a note.
What to see
Next week, there are several key economic reports, including Sustainable Products Monday and ISM Manufacturing Friday. There is also data on personal spending on Friday, which the Federal Reserve monitors for its inflation index.
The Federal Reserve will have a big focus next week. Many Fed speakers will be present, including Chairman Jerome Powell, who has twice testified before Congress about the epidemic and its policy. Treasury Secretary Janet Yellen will join him for hearings on Tuesday and Thursday. Powell appeared on a European central bank panel with other central bank leaders on Wednesday.
Investors will also look to Congress next week, as lawmakers try to pass a funding plan in time to avoid a government shutdown in October. The debt ceiling is expected to be part of this debate, but strategists do not expect it to be resolved at the same time. They say it could hang in the market for a few weeks before Congress raises the debt limit.
Fed speakers are not expected to give any new information, but after the central bank indicated last Wednesday that they could tune in to their message that it expects to cut মাস 120 billion in monthly bond purchases soon. The Fed has also released a new forecast for interest rates, revealing that half of the 18 Fed officials expect to raise interest rates next year.
“I think what the Fed has achieved so far is a taper without a tantrum,” said Mark Chandler, chief market strategist at Bancburn Global Forex.
“I think a lot of people who invest in the market have the idea that they’re skating on thin ice, and any cracks can be big. … People are extremely sensitive and nervous because they know the assessment extends.” “That means we should expect these episodes to jump on the bandwagon.”
Chandler said the market needs to digest recent moves, especially higher measures in Treasury yields.
“What we have to wait for now is to find this new balance. What kind of market should we expect? Trending? Or are we trying to find a range?” He said. “I think we find a range. We have to overcome some obstacles.” Chandler added that one obstacle is the October-October job report.
The Fed is expected to reduce its 120 120 billion monthly bond purchases in the absence of alarmingly weak employment data. “That’s the only thing that stands in the way of the Fed tapping,” Chandler said.
Michael Schumacher of Wells Fargo said the end of the quarter could be quiet in the case of large fund restructuring. “The equity market has jumped around. It’s over a quarter. It wasn’t too much when you compare it to bond performance,” he said.
The 10-year yield has made the third quarter an unusually volatile round trip move. It was 1.47% on June 30, and as high as 1.46% on Friday. Of these, it fell to 1.12% in early August. Schumacher said the bond market could calm down towards the end of the quarter and the 10-year yield could resume its higher steps.
Some strategists see the 10-year Treasury plate as a key indicator for the stock. It is associated with the movement of technology and other high-growth stocks.
Katie Stockton, founder of Fairlead Strategies, said high growth in 10-year Treasury yields and technology are now sensitive. He said that while comparing the sector with the S&P 500, the technology sector is the most bought in terms of relative. The S&P 500 technology sector grew about 1% for the week and about 6% for the quarter.
“We will consider reducing exposure to increasing ETFs like ARKK and respect any breakdowns,” Stockton said.
Investors are set on the 50-day moving average of the S&P 500, which sat at 4,439 on Friday. For the first time this year, the index broke below and closed below the average of multiple sessions last week. By Thursday, it had gotten a 50-day back and ended on top of that. The broad-market index closed at 4,455 above the 50-day moving average on Friday.
The 50-day is literally the average of the last 50 closing prices, and is seen as an important momentum indicator, just like the 200-day moving average. A break at the top could signal a positive move, and a break below it could signal a worse side.
Stockton said relief rallies on the S&P 500 could resume next week. “But we think it will fade by the end of the week due to the downturn in our mid-term indicators. We expect the SPX to reach lower heights,” he wrote in a note.
He hopes the 10-year Treasury yield could be even higher. “The momentum seems to be moving upwards and the next resistance is close to 1.53%. The breakout should benefit the financial sector, which has seen significant outperformance. [Thursday], “Stockton noted.
Week in front of the calendarAnd
Earnings: Aurora marijuana
8:00 a.m. Chicago Fed President Charles Evans
8:30 am Durable product
12:50 pm Fed Governor Lyle Brinard
Earnings: IHS Markit, Micron, Cal-Maine Foods, Thor Industries, United Natural Foods, FactSet
Morning: 30.: 300 advance economic indicators
9:00 a.m. Chicago Fed’s Evans
9:00 a.m. S&P Case-Rock House Price
9:00 a.m. FHFA house prices
10:00 a.m. Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen respond to the epidemic before the Senate Banking, Housing and Urban Affairs Committee
10:00 AM Consumer Confidence
1:40 pm Fed Governor Michelle Bowman
Afternoon: 00: 0 Atlanta Fed President Rafael Bostick
Evening: 00:00 St. Louis Fed President James Bullard
Earnings: Jabil, Sintas, Herman Miller
10:00 a.m. House sale pending
11:45 am Fed Chairman Powell on the European Central Bank panel
2:00 pm Atlanta Fed Bostic
Earnings: Jefferies Financial, Carmax, Bed Bath and Beyond, Pechex
Initial unemployment demand at 8.30 am
8:30 am Real GDP Q2
Morning :: 455 Chicago PMI
10:00 a.m. Fed Chairman Powell and Treasury Secretary Yellen House before the Financial Services Committee
11:00 pm Bostick of the Atlanta Fed
11:30 pm Philadelphia Fed President Patrick Harker
12:05 pm St. Louis Feds Boulevard
12:30 pm Chicago Fed’s Evans
Monthly vehicle sales
8:30 am Personal income and expenses
10:00 am PMI production
10:00 am ISM production
10:00 AM Consumer Feelings
10:00 am Construction costs
11:00 am Philadelphia Feds Harker