Last Monday’s Capital Wave Forecast (October 21, 2019) called for the week to be “positive, if not, then a sideways week,” which is almost exactly what we got.
Only the sideways part came first and then followed by a Friday rally.
After uneventfulness throughout the week, better than expected earnings outweighed a few heavily knocked-down stocks who missed estimates and guided lower (setting up beats in the future, no doubt), teeing up a Friday run towards all-time highs.
The S&P 500 got above its highs on an intraday basis on Friday but closed just shy of its July 26, 2019 peak of 3025.86, ending just below there at 3022.55.
The now three-week run up for the S&P should be rewarded this week with a finish above its old peak, unless of course, something spooky surprises us this Halloween.
The Dow rose .7% last week to 26,958, which is about 1.5% below its last July all-time peak.
The Nasdaq Composite rose 1.9%, a four-week-in-a-row rally, and ended only 1% from its July peak.
All the checked boxes in the “probably going higher” column I ticked off last week, I’m ticking off again.
Check off a likely good week for earnings, a likely good week in terms of political and geopolitical developments not being an impediment, and most notably, I’m double checking the narratives box this week.
That’s because the recession narrative appears to be receding, though there are lots of naysayers in the financial press and analysts still casting stones on the economy marching along at a steady pace.
And a new narrative could quickly take the place of a recession…
Cuts Will Be Big Any Way You Slice It
Despite all those naysayers throwing cold water on GDP prospects, stocks keep marching higher. Sooner or later, with the sooner being when we get above benchmark index peaks, possibly as soon as this week, maybe even today, investors will start coming off the sidelines and push stocks higher.
What could quickly become the narrative du jour is that the naysayers are wrong, and there’s another leg higher left in this aging bull market.
Why not? There’s no reason really.
The Fed meets this week and according to fed funds futures there’s a 93.5% chance they’ll cut another quarter point.
That would be three cuts this year.
Don’t forget, rates peaked about a year ago and have been coming down. It takes about a year for lower rates to work their way through the economy.
We’re almost there.
Bond yields have been spiking back up from the low yield fear levels they reached when the recession narrative was peaking. That’s another cut into the recession narrative and another reason a new buy into this next leg up might lift stocks and make the new narrative du jour self-fulfilling.
While there’s no guarantee some tricks won’t be in the goody bags markets hope are filled with nothing but sweets, the forecast this week is for treats for new narrative believers.