Overview
In a brief speech at the Fed’s Jackson Hole conference, Fed Chair Powell implied that rates would go higher from here and may remain there through the end of next year. So rates “higher for longer” was the message. But let’s not forget that the Fed has been wrong before, and it is best to focus on incoming data.
The Dow declined by 1008 points, so the short-term trend has turned bearish (after the initial reversal on Monday). We are also entering a seasonally bearish period between now and the election.
The Bureau of Economic Analysis released the Personal Consumption Expenditures data for July on Friday. The PCE index declined to 6.3%, and the core PCE (excluding food and energy) fell to 4.6%. The core PCE index, of great importance to the FOMC, has now fallen below its 12-month simple moving average. However, the FOMC is looking for many more months of steady declines.
Key Question
The market is entering a seasonally weak period since, historically, September usually sees declines, and indexes are also vulnerable in the period leading into Congressional elections. However, many stocks in the energy sector have surpassed their summer highs. Therefore, we use the Chande Trend Meter to find top-trending Energy sector stocks.
Performance Review
Stocks fell heavily on Monday in anticipation of Powell’s speech, whose contents had been widely telegraphed. Nevertheless, on Friday, the market sold off heavily after the Powell speech, similar to the action in April.
The net-bull bear balance turned bearish on Monday after that selloff, recovered a bit on Thursday, and crashed again on Friday to end at a bearish -65.
“Fed Speak” has tanked the market repeatedly this year (see chart below). The entire selloff started on the 5th of January with the release of the December FOMC meeting minutes, which discussed raising rates faster and sooner. The Powell comments in April triggered that down leg, and we have another today.
The US 2-year note broke to new lows since it closely reflects Fed policy. Thus, any future rally in US equities must await the next bottom in this contract.
The US 10-year futures remained above recent lows, showing that longer-term inflation expectations have not budged much despite the Powell speech.
Energy Sector Rally
The Energy sector has started to rally over the past few weeks. A list of the strongest trending stocks in the industry via MetaStock is shown below. It offers a mix of solar stocks, large petroleum companies, and natural gas stocks.
The recent passage of the Inflation Reduction Act has increased interest in solar energy stocks. We show below the chart of First Solar, which did well on Friday despite heavy selling elsewhere.
Wrap-up
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Disclaimer
And now for some housekeeping. This publication is for “edutainment,” education, and entertainment, not for investment advice. Past performance is not necessarily indicative of future results. Our disclaimer at chandeindicators.com is included herein by reference.