The S&P 500 was slated to swing higher, but couldn‘t reach even 4,480s only as rotations into cyclicals didn‘t kick in really. With the 10y yield sitting on the mid 4.20s% fence (not confirmed it would be done going up) and oil rising, it‘s understandable that risk-on sectors are lagging as it becomes a question of not if but rather when, the Fed raises again. I still think it would happen in Nov, but the equally important question at odds with market expectations is that no rate cuts are coming any time soon.

As I wrote in Thursday‘s analysis:

(…) Likewise the fact that still solid consumer spending is the result of both almost fully depleted excess savings and the current savings rate dip to merely 3.5%. Add in stubborn inflation expectations, the gap between core and headline inflation to be resolved by again rising headline CPI, and still relatively solid job market, all of which goes to highlight more tightening needs, and rising rates reflect that. 10y yield has still a way to go (in time) before declining – and if not earlier, then the Sep FOMC with no hike, would do the job of bringing yields down.

Besides, housing is getting concerning, and JOLTS sign of the times (let‘s remember not only dismal current but also) last month‘s data had been revised down by 417,000 and that‘s the largest revision ever.

At the same time, the real economy isn‘t slowing down sharply, the recession won‘t arrive before December, and the difference in momentary economic performance to Europe and China (troubling (saw also the data about international trade contracting sharply, looking both at Germany and China export-import data?), is significant. Coupled with shrinking global liquidity and dollar shortage helping USD up, that‘s conducive to the inflation fight. Make no mistake though, down the road when it becomes necessary, the Fed opts for financial (banking) system stability and Treasury financing needs in our fiscal dominance era (much of the tightening is being negated by expansive fiscal policy).

I‘ve developed these thoughts further in the well-received Saturday video, check it out. Also as I have stated in Saturday‘s 8-part Twitter thread, the job market is still tight even if job openings come much down, the wage pressures remain, and the realization of sticky inflation and headline to turn up to meet the core is underpinning bond yields too. As the stock market correction is far from finished, it remains to be seen how much of a safe haven bid this would result in for Treasuries and gold.

Let‘s move right into the charts (all courtesy of www.stockcharts.com).
 

S&P 500 and Nasdaq Outlook

4,462 support is practically where stocks closed Friday, and I favor clearly bearish resolution latest by Wednesday‘s CPI, where 3.7% YoY would be a nice present for the bears. With disinflation in trouble, that means more tightening and difficulty expanding P/E multiples. 4,345 represents only the first target in the downswing, but first comes 4,432 and especially 4,415.

Today though, stocks are going to go up, probably above 4,485 decidedly.

To illustrate, NVDA is clearly in distribution phase, and AAPL is similarly hit by the China ban. While I would think about 4,225 as the autumn correction target, which is a safer, more reasonable expectation to make than to think about 3,800 or similar. First though 4,345.

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