Friday, we saw a lot of back-and-forth action in the markets following Powell’s speech.
While the market initially popped, it quickly dropped before bouncing back up and closing with a green candle by the end of the day.
Powell said what the market wanted to hear: “The time has come for policy to adjust,” which is code for reducing rates.
But as I mentioned last week, rate cuts aren’t necessarily bullish for the market.
The Fed doesn’t cut rates when the economy is humming along smoothly; they cut rates when the data shows the economy is slowing down.
So, even though the market might get excited at the prospect of rate cuts, we can take a smarter view and keep a cautious eye on the broader economic picture.
Today, we’re seeing the market pull back again, and it’s easy to wonder if this is a delayed reaction to Powell’s speech. But there might be more to it than just that.
Last week, the jobs numbers were revised down by a staggering 818,000 jobs. That’s not a small revision — it’s a pretty huge adjustment which could be a red flag that the economy isn’t as strong as we thought.
So while Friday’s rally was fueled by hopes of rate cuts, today’s sell-off could be the market starting to digest the reality that the economy might be weaker than expected.
As I said before, the market loves rate cuts in the short term, but they often signal bigger problems ahead. So, while everyone’s eyes are on Powell, I’m keeping an eye on the key economic indicators that will drive Powell’s decision.
One key thing to keep an eye on is how the recovery has been pretty uneven.
While the S&P is currently hovering above the 0.786 Fibonacci level, which is at 5592, the Dow briefly made a new all-time high today, before quickly retreating and closing just a hair above where it opened.
Most surprising of all, for anyone who saw tech’s dominance earlier this year, is the fact that the tech-heavy QQQ — at least so far — has firmly rejected the 0.786 Fibonacci level and is floating just above the 0.618.
Stay sharp, and don’t get too comfortable with these swings. The real test for the market is still unfolding.
Enjoy your weekend.
— Geof Smith
P.S. I just hosted Jack Carter’s 10AM Income Project today. If you’re not getting his top-vetted pick every morning at 10AM, you’re missing out. See what I mean here.
