Has the Powell pivot turned into a Powell pounding? Probably not. It seems like the 1/4 percent rate cut was meant to be more of a present given to the stock market than a punishment. But at least for today, the market pouted that it didn’t get its 1/2 percent cut.
The main stock market indexes succumbed to intense professional selling (aka Distribution), which started during Fed Chief Jerome Powell’s press conference, and as of the close had undercut an important price support level in the process. Our “core 4” market internal indicators now show 2 RED, 1 YELLOW & 1 GREEN. Based on that and the action of other key stock market internals today, our Current Market Outlook has been downgraded to “Uptrend Under Pressure” and our light is now yellow.
We don’t expect the market to stay in a yellow condition for long. Ideally, the market will process the news overnight (or over the weekend) and snap back soon to its winning ways and go “green” again. (After all, rates are going back down. Here’s to you, Mr. President!)
However, a second possible outcome would be the exact opposite of that ideal scenario. The fear of a looming recession could begin to build (what does the Fed see that Wall Street doesn’t?) and cause investors to desire to reduce their risk levels and pare back their stock allocations. (Read panic.) Early in that process our light would change to “red” as selling would beget selling and a correction would likely take hold. Either way, we don’t expect a yellow condition for long.
On a hopeful (if not an outright bullish) note, tomorrow is the first day of the month which typically features strong inflows into stocks. There is also the “opposite of Fed-day” theory in play, which observes that the stock market often does the reverse of its Fed-day knee-jerk reaction on the day after the announcement. While we don’t factor either of these ideas into our disciplined, mathematical process, they may serve investors well as a sort of a “market tell” tomorrow, especially if the market drops hard even with those positives as a backdrop.
Finally, regarding the notion of a “one & done” rate cut, our research shows that the Fed rarely does anything just once. Typically, it’s “one of many”. Will it be different this time? Buckle up & stay tuned.
Have a Triumphant day! ®