I looked at the weekly seasonality for this week, as I do every week, and the “forecast” is for a nice 0.3% return for the S&P 500.
Let me explain what that means.
When you look at the last 20 years of performance of the S&P 500 you find that there are very strong trends. It’s the entire reason that you will hear people talking about “seasonality” on CNBC. But the next few months hold some seriously strong trends that you’re going to want to know and obey.
This morning, the market is driving slightly higher this morning as some investors are still reacting to the Jerome Powell’s Jackson Hole speech.
Folks, that speech was over days ago, along with any effects from it. The only effect that you’re going to notice now is the rally that happens on September 18 when the Fed finally drops rates. Until then, please get it out of your head.
Those investors that aren’t talking about Jerome Powell are talking about NVIDIA (NVDA)’s earnings on Thursday.
This event must be the only date on the calendar that is more important for investors than September 18 right now.
EVERYONE is going to be tuned-in to CNBC on Thursday as NVIDIA’s earnings results hit the wires, and that’s a problem, here’s why.
“Never run with the crowd. Avoid bandwagon stocks unless you’re driving. The best time to buy is when everyone is selling, and the best time to sell is when everyone is buying. Wall St. analysts represent a “Group Think”. you never beat the markets if you think like or follow everyone else.”
Simply put, this market feels crowded and to some degree “bullied” higher.
The two people that are bullying it higher are Jerome Powell and Jensen Huang (CEO of NVIDIA).
In 30 years as a financial professional I’ve never seen a market that has anticipated an interest rate cut the way this one has. The “group think” is that this market deserves a cut, not that it needs it. That can be a dangerous perspective for the market to take as we head down this road.
At the same time, we’ve got the market waiting for what may be the most important earnings report of the year from NVIDIA on Thursday after the close.
I don’t talk about them often, but the various investor polls are a good source of where the market stands in terms of becoming crowded.
For instance, the Investor’s Intelligence poll. This weekly poll tracks the outlook from more than 130 independent investment newsletter publishers. This poll is well known for being an accurate contrarian indicator. Why? Well, when the ratio of bulls-to-bears reaches excessive levels it often marks a top in the market, and we’re there right now.
Last week’s reading of the poll weighed in at a hefty 3.23 bulls for every bear, among some of the higher readings in the last year. For those unfamiliar, readings over 3.0 usually put the smart money traders on alert because it’s a sign that the market is becoming crowded.
The Fed has effectively been bullied into cutting rates despite the continued flow of strong forward and backward-looking economic data.
This is where the potential danger comes in. An underwhelming Fed combined with overly optimistic expectations and a crowded market may equal disappointment and thus selling. Frankly, we won’t know for a few days, but I can tell you that you should not take your next lead from the market’s initial reaction to this afternoon’s announcement, let it simmer for a day or two and then follow Commandment Number One.. “The Trend is Your Friend.”
Now, the good news is that the Fed isn’t slated to take the interest rate stage for three weeks and the way that the calendar looks, Jerome Powell will be coming in right in time to save the markets.
You read me right, save the markets.
Stocks are going to get choppy after Thursday’s results from NVIDIA.
From the looks of the NVIDIA trade, anything less than a PERFECT earnings report will cause the stock to move lower in a “sell the news” trade reaction from the market.
After that, we move into a deadly period for seasonality as we cross into the month of September.
That crowded market that I’ve talked about is going to take the first three weeks of September selling many of the high-flying technology stocks as investors get ready for the Fed to start boosting other areas of the market like bonds, dividend yielders and banks.
That means cutting some of those high allocations to the Magnificent Seven stocks – have you noticed how none of them are trading near their highs?
There’s a simple plan to get you through the month of September.
Think defensively and have a preppers mind for the next three weeks.
Professional money managers are going to be spending their time cutting high allocations to technology companies and shifting those assets to the sectors that the Fed will give a boost, do the same.
We’ve written about a few of these sectors over the last week, including the regional banks (Read about them here) and homebuilders (Read about them here)
