The choppiness continues as we enter October. While there has been some selling the past few weeks, it’s been impressive to watch the buyers come in and take advantage of cheaper stock prices (driving prices right back up). It seems that we’re very much in a “hurry up and wait” situation as the market trades sideways looking for direction from congress on the debt ceiling and from the Federal Reserve on bond purchase tapering and interest rates. None of these news item is likely to significantly move the market until a final decision is announced, but the yo-yo of emotions associated with the day to day back and forth is keeping investors anxious.
The S&P did breach the low formed last Monday 9/20 of 4357, but the market has responded nicely since, staying above 4300, trading sideways in a 350 point range. As of mid-week, the market has declined about 5% from high to low, which gets us in the ballpark of the average pullback given the current market conditions. Remember, on average, a 5% - 10% pullback happens once every 12 months, all normal stuff. We’ll continue to watch the 4300 area to hold at the end of each trading day. The buyers are still present every time the market dips, the sellers can gain no traction. According to Michael Gibbs: “If 4300 is breached, a decline to the 4233-4250 area of support would be in the “average” drawdown territory for the low volatility environment that has defined the market for much of the past year.”
Many of the recent headlines surrounding debt ceiling brinkmanship, supply chain issues, China trade tensions, and soft seasonality all have played a role in recent weakness. The Senate and House are voting on the debt ceiling seemingly every day as they negotiate the details on any bill(s). Traders will play close attention to Friday’s nonfarm payrolls data to gauge the timing of the Federal Reserve’s next announcement on bond purchase tapering. Notably, on Tuesday this week, an ISM reading on the U.S. services sector activity came in better than expected, perhaps indicating the Fed will remain on track to announce a pullback in bond-buying sooner than later.
Finally, energy has had a decent couple of weeks as crude oil prices rose to $77.62/barrel (highest price since 2014). We’ve certainly noticed the increase at the pump. Interestingly, while it’s not been newsworthy over the last few years, OPEC + can still move headlines, and they agreed to maintain their plan for gradual increases in supply (rather than a bigger increase) which ought to keep oil prices steady.
We hope you have great fall weekend!
Sincerely, DeHaven, Michael, Janet, Mariah and Tamara.