Despite a strong late week, the S&P 500 was unable to extend its rally past 4,000 yesterday. The index dropped 33 points to close at 3,934. However, the market has not been able to break below key support near 4,000. It is now testing the 50-day moving average.
The S&P 500 closed above its long-term average for the first time in three weeks. But, the market is at a critical juncture. It has now lost nearly 20 percent of its value since its all-time high. It is also nearing the point of Fibonacci resistance. While the market may have been getting ahead of itself, it may be too late.
On the positive side, the Fed is expected to raise rates by half a percentage point at the December meeting. But, a slower rate of inflation will ease some pressures. The October PPI, for example, was lower than expected. That suggests the Fed may be close to “day of recognition” sooner than expected.
The Fed has been aggressively raising rates in the last few months, but now the yield on the 10-year Treasury note is nearing the peak of its cycle. It is also clear that China’s economy is slowing down. This could affect the economy and its ability to support the stock market. The Fed’s removal of forward guidance on rate increases was widely regarded as a sign that it was easing its rate hikes.
Some analysts believe the rally has ended, but others say that the rally will continue. Dave Sekera, chief U.S. strategist at equity research firm Sekera & Company, believes that six companies with strong economic moats will continue to outperform in an economic environment. He says that the headwinds will ease at the start of next year.
Analyst Michael Cyprys also said that the recent decline in value makes the current entry point more attractive. Still, he said that it may take some time for the bear market to end.
Analysts say that the next big piece of data the Fed will look at is the November jobs report. This data is expected to show that employers slowed their hiring pace in August. Inflation data is expected to drop to 4.2% on Tuesday. This could cause retail sales to decline.
The stock market has also experienced a significant amount of volatility during the past two months. Some analysts believe the rally is over, but others argue that the S&P could return to the March lows. The market’s recent volatility has provided many investors with a nice opportunity to buy stocks without getting crushed. However, this volatility has also made many investors nervous.
This week could be even more active due to the release of retail sales data. The November FOMC meeting minutes could also play a big role.
A number of investors have started to feel optimistic again. But, they are also beginning to wonder why the rally has not worked. While it is not clear why the market has stalled at its resistance, it is clear that investors need to stay focused on subtle messages.