Stock Market Quarterly Update September 2024 After commencing the month with a 4% decline in early September, the S&P 500 rebounded, closing the month with a 1.81% gain and setting a new record high. Our original Buy Alert for the SPDR S&P 500 ETF (SPY) on the monthly chart was issued back in May 2023. We always utilize higher time frames to ascertain our main trend direction. We then use the weekly chart to confirm the trend and the daily chart to enter positions. Our strategy is to never short indexes; however, when our proprietary algorithm triggers a sell alert, we refrain from accumulating equities or the SPDR S&P 500 ETF (SPY). The green line is our next resistance level. We believe this level will be tested by year-end.
This resilience underscores a robust market, with the index posting gains in eight of the first nine months of 2024. Following the Federal Reserve's interest rate cut on Wednesday, September 18th, Chair Jerome Powell frequently used the term "recalibration," signaling a strategic shift toward adjusting real interest rates to sustain the business cycle—a significant reversal from the past 30 months of inflation-fighting monetary tightening.
This strong market performance defies typical September seasonality and aligns with the ongoing bullish technical setup for U.S. indices, coupled with positive breadth, momentum, and a lack of excessive market sentiment. A dovish Fed and China's stimulus measures have further fueled the bullish case.
**1. Jerome Powell & Co. Shift Towards Easing With No Recession
Jerome Powell & Co. have been at the forefront of investors' minds as it balances controlling inflation with sustaining economic growth. While interest rates have been on an upward trajectory to combat inflation, the Fed has signaled that it has reached the end of its tightening cycle. A shift towards an easing monetary policy will provide a significant tailwind for equities. An accommodative monetary environment coupled with steady economic growth will foster further gains in the equity markets.
**2. China's PBOC Implements Stimulus Measures Indicating a Positive Inflection**
The People's Bank of China (PBOC) has introduced substantial monetary and fiscal stimulus measures—often described as a "bazooka"—aimed at bolstering its slowing economy. These actions signal a positive inflection point for global markets, as increased economic activity in China can have far-reaching implications. Enhanced demand from China could benefit multinational corporations and contribute to global economic growth, thereby supporting higher equity valuations.
**3. Post-Election Stability and Deployment of Sideline Cash**
Historical trends indicate that post-election periods often bring increased market stability and investor confidence. With political uncertainties diminished, substantial cash reserves that have been sitting on the sidelines may start flowing into the markets. This influx of capital can drive equity prices higher as investors seek to capitalize on new opportunities in a more predictable political and economic landscape. The combination of reduced uncertainty and abundant liquidity sets the stage for potential market rallies.
Cash on the sidelines continues to accumulate. Total money market balances surged to $6.4 trillion last week, increasing by a near-record $130 billion. This balance stood at $4.2 trillion when the Federal Reserve began its "war on inflation," and we continue to view this as a significant source of market liquidity and potential buying power.
Market breadth has improved in recent weeks. Approximately 80% of S&P 500 constituents are now above their 200-day moving average. While short-term breadth has slightly tailed off in the last two weeks, longer-term breadth remains quite constructive.
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