As the holiday-shortened week begins, stocks are expected to continue their momentum despite facing a historically weak period for markets. Last week, the Dow Jones Industrial Average and Nasdaq Composite had their best week since July, while the S&P 500 posted its best weekly performance since June. This return of risk-on sentiment to Wall Street has investors feeling optimistic about the near-term outlook. Technical indicators, such as the major indexes breaking above their respective 50-day moving averages, suggest improving short-term momentum. However, there are challenges ahead as September is typically the worst month for markets and major inflation data is set to be released ahead of the Federal Reserve’s September rate decision.
Despite the seasonally weak period for stocks and the upcoming Fed meeting, market experts are encouraging investors to stay the course. The economy is showing signs of slowing down, but not crashing into a recession. This gradual slowdown may be seen by the Fed as a reason to pause rates in their September meeting. As of Friday, the CME FedWatch Tool showed that markets are pricing in a 93% chance the Fed will hold rates in September. This level of optimism is further supported by bullish signals in historically weak months, such as September. While this month has historically been the weakest for equities, there have been exceptions to the trend, and recent momentum in the market suggests this may be one of them.
Investors will need to closely watch economic reports, particularly those related to inflation, before the Fed meeting. The August consumer price index and producer price index are set to be released in September, along with the personal consumption expenditures price index, which is the Fed’s preferred inflation measure. The trajectory of inflation will influence the Fed’s rate decision, as inflation remains a significant factor for policymakers. The unemployment rate has also affected market expectations for the upcoming Fed meetings, with traders betting on a pause in rates. However, economic reports will provide more clarity on the overall economic situation before any final decisions are made.
Despite the challenges and historical weakness of September, some experts believe that the S&P 500 could reach new highs before the end of the year. Factors such as neutral sentiment indicators and positive earnings outlooks suggest that the recent momentum in equities could continue. Although volatility may be expected in the coming months, as August and September are known for their fluctuations, investors need to brace for potential market movements. The strength of the economy will play a crucial role in determining the overall direction of the market.
The upcoming week will be holiday-shortened, with markets closed on Monday for Labor Day. However, there are still important economic events to watch, including the release of July factory orders data on Tuesday. Additionally, PMI reports will provide further insights into the state of the manufacturing and services sectors. Thursday will bring important economic reports, including continuing jobless claims, initial claims, and productivity data. Earnings from companies like Fastenal and Kroger will also be released throughout the week, providing further information on the state of the market.
Despite the historically weak period for stocks and upcoming challenges, such as major economic data releases and the Fed rate decision, the stock market is expected to maintain its momentum. Technical indicators and positive sentiment suggest that the recent upward trend could continue. However, investors should remain cautious and stay informed about economic reports and market developments. Ultimately, the strength of the economy will be the deciding factor in determining the market’s direction in the coming months.