Market Recovery Accelerates as SPY Reclaims Key Levels Amid Rate Cut Optimism
The early September selloff in the SPY was notably unusual, with a 4.51% decline over seven trading days. However, the SPY has rebounded impressively, closing today with a strong bullish signal by surpassing the September 3rd high of 560.81, a key indicator of market resilience. This reversal may be fueled by growing optimism surrounding a potential 50 basis point rate cut, as highlighted in an article by Nick Timiraos, Chief Economics Correspondent for The Wall Street Journal, published yesterday.
Crypto assets have also rallied in tandem with traditional risk assets. Bitcoin climbed 3.75%, reaching yesterday’s intraday high of around $60,332, as investor sentiment strengthens.
In our view, Jerome Powell and Co. are cutting rates for the right reasons, backed by data showing cooling inflation and weakening labor markets. With the current Fed Funds rate at 5.50%, monetary policy is highly restrictive. Failure to act decisively risks a hard landing scenario for the economy. We believe the Fed should target a rate closer to 3.50% to maintain economic stability.
Bottom Line:
Our algorithm has signaled the conclusion of the recent counter-trend move in the markets. Today’s buy alert triggers have been activated for the SPY and QQQ ETFs, signaling favorable conditions for entry. However, the IWM ETF, which tracks the Russell 2000, has not met the criteria for a buy alert at this time. Investors may want to focus on SPY and QQQ for potential gains while monitoring IWM for future opportunities. Our analysis suggests that markets will be higher by the end of December, with the VIX around 10-11.
