The week of October 31 is going to be packed jammed with a ton of economic data, earnings, and a Federal Open Market Committee (FOMC) meeting. Tuesday is all about JOLTS and the ISM data. The ADP job data and the highly anticipated FOMC meeting are scheduled for Wednesday. On Thursday the ISM services index will be released and then on Friday, the widely watched October U.S. Nonfarm Payrolls report.
According to the CME FedWatch Tool the Federal Reserve is likely to deliver its fourth 75-basis-point rate hike at the conclusion of its two-day policy meeting as the fight against sky-high inflation continues. So far this year the Federal Reserve raised their benchmark rates by 25-basis-point in March, 50-basis-point in May, and 75-basis-point in June, July, and September. Meanwhile the core PCE which was at 4.9% in May, rose to 5% in June and is now at 5.1% in September.
Investors would be closely looking for signals when the aggressive monetary tightening may start to slow, given the recent soft economic data. Investors are hopeful that the Fed would soon give hints for a moderation in the pace of interest rate hikes, which have been boosting equity markets over the past two weeks. At present the market is widely expecting at a minimum a 50-basis-point rate hike in December followed by a 50-basis-point hike in January 2023, and a smaller 25-basis-point hike at the March meeting. Together, these hikes would bring the official policy rate to a range of 5%-5.25%, where the Fed could choose to pause.
The Fed press conference and the Nonfarm Payrolls report are the key releases this week, which would be closely monitored by traders as they could help them establish expectations of the timing of potential pivot by the Fed.
Fed Chair J. Powell will likely utilize the press conference following the FOMC meeting to note that at some point it will make sense to slow the pace of rate hikes as the central bank ascertains the lagged impact of past rate hikes on the real economy.
Any mention of a potential slowing of the pace of rate hikes by the Fed in the press conference will almost certainly boost risk appetite in its aftermath.
On another hand, earnings season has passed halfway, and this week will be a test of whether equities can continue to weather poor earnings results. So far 263 of the companies in the S&P 500 index have already reported their quarterly results and more than 150 of the S&P 500 companies are due to report this week.
Despite relatively high U.S. dollar and disappointing earnings season, all major U.S. indices have had a killer month making a big comeback over the past two weeks, boosted by hopes for a Fed pivot. The S&P 500 already retraced almost 50% of its August decline. The rally coincided with the unwinding of strongly oversold and diverging momentum conditions, with the RSI steadily climbing toward overbought levels.
Volatility is in vogue this year and Wednesday’s trading session is likely to prove it once again. Would Federal Reserve Chair Jerome Powel say what the market is hoping for to keep the rally going or kill it, is yet to be seen. But what we do see now is a strong overhead resistance exerted by the medium-term down trend line on the daily chart crossing at 4,150, which is likely to keep a lid on the current run. We still see the rally from the mid October low as a corrective bear market rebound nearing completion and we favour a subsequent decline unfolding in the coming weeks.
For magnified exposure to the index, you can check our 3x Long and 3x Short US 500 ETPs to take advantage of upcoming up and down swings.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
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