S&P 500 Reaches New Heights, But Beware Of Election Volatility
Chart: SPY 1-year daily
The large-cap S&P 500 index broke above resistance of its slightly downward-sloping trendline. An all-time high is one of the best indicators you can have for a very strong market. The HCM-BuyLine® is also strong, and the trend is pointing up. However, as the election approaches, we do see a good chance for increased volatility to affect the markets.
Chart: TLT 1-year daily
The tech-heavy Nasdaq has also broken above resistance of its downward trendline, but, unlike the S&P 500, it didn’t close at a new all-time high this week. Its market breadth isn’t as strong as that of the S&P 500.
Chart: $COMPQ 1-year daily
Bond prices have fallen since the Fed’s decision, possibly because the stock market is still coming to grips with the news. The chart of the iShares 20+ Year Treasury Bond (TLT) shows that TLT is close to a support level.
So, the first Fed rate cut is behind us, and we are no longer in a “higher for longer” period, but in a new rate cut cycle which will most likely last well into 2025. So that’s good news for stocks, right? Well, not necessarily.
The reality is that rate cut cycles do not happen very often. On average, there’s one rate cut cycle about every ten years. This is because the Fed raises and lowers rates in line with the economic cycle. When the economy is growing, they can raise rates to keep growth in check. And when the economy starts to slow down, they can lower rates to encourage spending and economic growth.
But if history provides any lesson here, it’s that a rate cut cycle has usually been very good for stocks, but not always immediately. Mindful investors should remain vigilant, watching for signs of a potential downtrend, and focusing on areas of the market still showing relative strength in light of market uncertainties.
