The Standard and Poors 500 index (SPX) put up a very bullish chart after the FOMC announcement on Wednesday, closing higher and finishing the week up over 4%. SPX closed today at 4130, up 58 points or 1.4%. SPX has yet to break above the failed June recovery high. The S&P 500’s trading volume climbed every day this week and broke above the 50-day moving average (dma) on Thursday.
VIX, the volatility index for the S&P 500 options, opened the week at 24% and closed today at 21%. That decline is certainly a welcome move, but color me nervous.
I track the Russell 2000 index with the IWM ETF. IWM followed the other indices higher after the Fed announcement. IWM closed at 187.25 today, up 1.32 points or 0.7% on the day and up 4% for the week. However, IWM remains nearly two percent below the failed June recovery high at 190.
The NASDAQ Composite index followed the lead of the other broad market indices today, closing at 12,391, nearly two percent higher on the day and almost 5% higher for the week. NASDAQ broke through its failed June recovery high today. NASDAQ is the only broad market index to achieve that mark. NASDAQ’s trading volume climbed all week but remains below its 50 dma.
Several analysts have declared that we have seen the market bottom and the bullish trend is returning. This week’s post-FOMC run was impressive and the markets have recovered their 50 day moving averages. Although NASDAQ has broken through the highs of the failed June recovery, the S&P 500, the Russell 2000 and the Dow Jones Industrial Average remain short of that high.
I found it surprising that Powell’s comments on Wednesday, explaining the need for two sequential 75 basis point discount rate hikes, rendered Thursday’s second negative GDP number inconsequential. The market consensus appears to be that Powell has taken strong action against inflation and the Fed will now wait patiently to see the rate hikes take effect. Therefore, happy days lie ahead and the bulls will take charge. Ignore that pesky GDP number.
The next FOMC meeting is in late September. I had a horrible thought as I looked at the calendar. What if the Feds announce another rate increase in September, bursting the current expectation that they were done raising rates? That surprise would occur just in time for October, the month of nasty market crashes.
The Covid lockdowns destroyed small businesses in this country. I believe that is core to the weak GDP numbers. I see no signs of inflation abating anytime soon. I hope I am wrong, but I fail to see the underlying economic strength necessary for a bullish stock market.