Learnings and conclusions from this week’s charts:
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The S&P 500 slipped -1% in October (making it +19.6% YTD).
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Pre-election de-risking continued last week.
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Seasonal tailwinds are on the way.
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Softer PMIs stand at odds with strong stocks.
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Stock market confidence is extremely (record) high.
Overall, as noted last week there does seem to be a sense of caution ahead of multiple event-risk in the week ahead (the election being the big one). Paradoxically this sets the scene for a rally if you just clear that uncertainty out of the road… and into what has historically been a seasonally strong part of the year. But as explored in-depth this week, we are well progressed through the cycle and getting closer to the danger zone of a number of different frameworks for market analysis
1. November is Here: The S&P 500 dropped -1% on the month in October, breaking a 5-month streak of gains, yet still placing it up +19.6% YTD (21% including dividends) — and at the top of the table across the major asset classes. The cyclical bull market that began in October 2022 looks very much alive and well for now, and the trend is fairly strong with the index still comfortably above its 10-month moving average (which it has been for 12 months in a row now).
Source: Topdown Charts
2. De-Risking: In the short-term there has been a clear bit of de-risking going on heading into election week, with just simple blind uncertainty serving as a prompt to step back and see what happens. The Index has pulled back to the 50-day moving average after peaking around mid-October, and breadth has dropped off to mildly oversold levels. So it’s set up well to rally if all goes smoothly in the week ahead — if you get a benign and clear election outcome then all talk will turn to year-end rallies and existing bullish momentum likely carries it higher.
Source: Callum Thomas using MarketCharts.com Charting Tools
3. Fund Flow Season: Not to mention the point that November typically does see a surge in fund flows. Of course the counterpoint would be that everyone already knows this and that’s why the market has been so resilient. The other counterpoint would be that there are still some nasty geopolitical risks lurking, and a benign clear election outcome is far from guaranteed …also the data has been a little patchy on some fronts.
Source: @SethCL
4. ISM Isn’t Confirming: For instance, the latest ISM manufacturing PMI dropped to 46.5 (vs expected 47.6) — which is a 16-month low, and stands in stark contrast to where the market usually travels with this indicator. You might argue that the market is right and this indicator is wrong and broken ever since the pandemic, but also
Source: Topdown Charts Professional