The XJO is expected to edge lower on open this morning following a small pullback in the U.S overnight. Their futures are firmly in the green, however.
Their market is clearly still digesting the forward guidance from the Fed this morning. Until they give a clearer direction we are likely set to continue sideward. We are grinding along key all-time high resistance like the U.S. If they break higher we are more than willing to follow suit. However, if they pullback in any serious capacity we are also likely to rebound off of our key resistance and move back towards the recent trough of roughly 7,950. This is also roughly where the 50 day MA comes in.
US Markets
US shares closed lower overnight despite the Federal Reserve cutting rates by 0.50%. Despite this, Fed Chair Jerome Powell made it clear than the size of the rate cut shouldn’t be interpreted to mean that this was the start of an aggressive cutting cycle. Indeed, Powell stated that he doesn’t believe the world is going back to a period of ultra-low interest rates. Nor should it, US government deficits are at record levels per month, something which is inherently inflationary. US shares initially traded higher, but prices pulled back to finish lower and at the lows of the day. However, after US markets closed, US futures have jumped back up, undoing most of the overnight selling. The forecasts accompanying the statements show that the Fed expects another 0.50% cut before the year is out, somewhat disappointing markets. Its very hard to know what markets will do from here, as history has very different outcomes based on whether inflation reaccelerates, or whether the economy heads for recession. The market movements from here will come down to economic data, should data look recessionary or inflationary, we will likely see strong downside movement.
Only two of the eleven sector groups of the SP500 closed higher overnight, with only Energy stocks making (very modest) gains. All other sectors closed lower to some degree, with Utilities the worst performer, followed by Technology stocks.
Technically, the SP500 is trading around the all-time high resistance at roughly 5,650. We will need to see what happens at this level, whether we see a hold of resistance and a break lower, or whether we see a break through this level and further gains. The reaction to the Fed didn’t really drive a directional breakout initially, but that could change with tonight’s movement.
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