[Market Outlook] Has the Fed Closed the Door To Future Rate Hikes?

Or, Does the Door Remain Partially Open? [Company Logo] Has the Fed Closed the Door To Future Rate Hikes? Or, Does the Door Remain Partially Open? By Donn Goodman November 05, 2023 [image] Hello Gaugers. Hope it was a profitable and more enjoyable week in the markets for you (then last). The Stock and Bond markets think the door has closed or is about to close on future rate hikes. Stocks soared and rates came down (bonds rallied). Everything turned on a dime. Read on for more details. You may recall the 3 charts we posted last week. Those charts had an abundance of history behind them, and due to their significance, our call was that the November turn could be upon us. We are AGAIN sharing the two charts we put in the END of the Market Outlook from October 29. (This is why it is important to read ALL of the Outlook each week). We also said we provide you with information that points to the best six months of investing that MAY lie ahead. (We also want you to know that we are a reliable source of pertinent investment information). See below: [image] [image] As you are all too aware, the previous month of October had been frightful. Indeed, the markets had become oversold, and the normal seasonal cycles were oncoming. We luckily got a sharp turn. Yet, the question remains, “can this positive investment environment last”? Let’s dive into this week’s action. Over the weekend, there was concern by many analysts that the “selloff” that had taken place the previous few weeks, coupled with major geopolitical risks and higher interest rates could get worse and the markets might fall off the proverbial “cliff.” Our Market Outlook last weekend took a positive position that things could soon turn in November. From the start of the opening bell on Monday, there was a positive bias in the market. Stocks gapped higher at the open as there had been no material rise in geopolitical tensions in the Middle East over the weekend with Israel’s ground invasion of Gaza ultimately being a less-significant military development than initially feared. Europe (Spain and Germany) came out with lower inflation readings than previously expected, and that ramped up money flows around the World’s developed stock exchanges. While we remain in “earnings season,” Monday morning had additional good earnings from the likes of McDonalds that helped create a positive investment sentiment. (McDonalds is a good proxy for retail sales and the state of the economy as evidenced by some economic analysts who use the “Big Mac” index). But all eyes were on Tuesday/Wednesday with the Fed meeting and a possible surprise rate hike. Wednesday, the markets were all up over 1% as the Fed came out with its announcement that there would be no rate hike. They did use words to offset the need to raise, which included “tighter financial conditions” on households and businesses. After Fed Chairman Powell’s press conference, most analysts believed that the Fed is successfully “threading the needle”. The Chairman reiterated the FOMC commitment to getting inflation down but maintaining a willingness to react to changing economic conditions. The stock market continued its rally Thursday as the US Dollar declined. We have long held that the Dollar (DXY) would be one of the strongest headwinds against financial asset appreciation in the US. See the following chart of the ETF UUP’s (US Dollar) dramatic slide this week: [image] Friday was the JOBS report. Good news as employers added 150,000 jobs in October, half as many as they did a month before. Job growth was also revised downward 297,000 for September, a Bureau of Labor Statistics report showed Friday. Meanwhile, wage growth slowed, and the unemployment rate rose to 3.9%. This counted as another piece of evidence that the Fed is done raising rates this year, with the futures market now indicating that the chance of a rate hike in December is below 5%, down from about 20% on Thursday. Average hourly earnings rose 0.2% from a month earlier, putting them 4.1% higher than a year earlier. That was the smallest year-over-year gain since June 2021, though unlike then, wages are now outpacing inflation. Can Jerome Powell declare victory? Maybe not just yet, but a cooling US job market gives the Federal Reserve Chair and his colleagues room to keep interest rates on hold in December and reinforces market views that the central bank is done with rate hikes—all as it zeroes in on a soft landing. “Put a fork in it. THEY ARE DONE!” said Jay Bryson, Wells Fargo’s chief economist. “This is very good news for the Fed.” One takeaway is that the job market is moderating but not buckling—a message reinforced by a variety of other data, including low levels of weekly unemployment claims and layoffs. Another is that the Federal Reserve is probably through with tightening: Futures markets on Friday morning indicated that the chance of the central bank raising its target range on overnight rates at its December meeting was below 10%. The yield on the 10-year Treasury notes, which briefly hit 5% less than two weeks ago, continued to retreat Friday, falling to 4.53% midmorning. See chart of the past two months. Notice the bottom line (RSI-Relative Strength Indicator) and how it’s moved from overbought (above 70) to now around 40. This is one roller-coaster ride for Bond investors for sure: [image] Friday, bonds and stocks rallied. The tech-heavy Nasdaq Composite rose 1.4%, while the S&P 500 gained 0.9%. The Dow Jones Industrial Average ended the day up 0.7%, or 222 points. All three indexes are up more than 5% over last week. We are now well above the October lows. See chart below: [image] The 20-year Treasury Bond ETF that we frequently use in a few of our strategies had a big day on Friday. It was one of the biggest weeks for the TLTs after a long and painful slide for bond investors. See chart below: [image] Risk (as defined by the VIX) declined faster this week than in 20 years. See chart below: [image] “In order for the stock market to rally, we will need lower interest rates and a weaker dollar” This is something we have often repeated in this column over the past year, Mish has also brought this up in her National TV appearances. As referenced in the above charts, this happened in a big way this past week. It did not take long for the stock market to recover some of its losses from the prior few months of selling. See chart below: [image] Turning Point? Use the links below to continue reading about: - The November turning point - Earnings season reports - The coming MarketGauge Pro services - The questionable likelihood of future Fed rate cuts - The BigView bullets [Click here to continue as a free member]() [Click here to continue as a PREMIUM member]( Best wishes for your trading, Donn Goodman CMO Market Gauge Asset Management [image] Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral. Get started here and continue with the links below. Risk-On - The key US market indices all had their [best weekly performance of the year](=) this past week, with the laggard of the bunch being the Diamonds (DIA) closing up about 5% this week and the leader being the Russell 2000 (IWM) which was up nearly 8% on the week. (+) - 3 of the 4 key US indices reclaimed a bullish phase this week by closing back above both the [50-day and 200-day moving averages](=), with the exception being IWM which closed just beneath its 50-day moving average to end the week. (+) - [Volume patterns]() have begun to even out to neutral readings over the past two weeks for 3 of the 4 key indices, however, the Russell 2000 (IWM) has had positive volume patterns with 4 accumulation days compared to 1 distribution day over the past 2 weeks. (+) - All major market sectors were positive this week, with some of the more [speculative areas being the top performers](=) including Homebuilders (XHB) +11% and Semiconductors (SMH) +8.1% over the past 5 trading days. (+) - [Energy]() plays such as Oil (USO / OIH), Clean Energy (PBW), and Solar (TAN) all performed well this week along with equities. (+) - Along with the explosive price action this week, several market internals indicators ran red hot including the [McClellan Oscillator and the Up/Down 5-day Volume ratio]() for both the S&P500 and Nasdaq Composite, but now these indicators look to be at heavily overbought levels after such a quick move. (+) There's more... Use the links below to continue reading about: - The November turning point - Earnings season reports - The coming MarketGauge Pro services - The questionable likelihood of future Fed rate cuts - The BigView bullets [Click here to continue as a free member](=)[Click here to continue as a PREMIUM member]( Best wishes for your trading, Keith Schneider CEO MarketGauge P.S. When you’re ready, here are 4 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](), Rob Quinn. 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