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Trading this week has been extremely volatile as investors are digesting the assassination attempt on former president Donald Trump and the likelihood of a rate cut in September. The Dow Jones Industrial Average had a record closing for seven consecutive days before reversing Thursday. The Nasdaq traded up Monday and Tuesday before retracting sharply Wednesday and Thursday. As the close of Thursday the S&P 500 is down 1.5% for the week, while the Nasdaq has seen a decline of 3.2%. The Dow Jones Industrial average is holding onto a 1.5% gain.
A reoccurring factor in the market has been when will the Federal Reserve finally lower interest rates. Going into 2024 the estimates were as high as 6 rate cuts. Now it looks like we could get our first rate cut in September, as the implied probability jumped to 92% from 72% after last weeks inflation report. Federal Chairman Jerome Powell said that labor market conditions “have cooled while remaining strong.” He added that the labor market is “not a source of broad inflationary pressures for the economy now.” Powell said that this was not his view as recently as two months ago. It seems the Federal Reserve has been solely focused on inflation for the past year, but now the realization is surfacing that keeping interest rates too high could “unduly” damage the economy. If the Federal reserve does lower interest rates this September, will it have an impact on the market. Though it may have a short term move up, I don’t think it will be sustainable at least not due to the rate cut. I believe the market has already priced in at least one rate cut for this year.
Wednesday’s decline in the Nasdaq was the largest decline since 2022,and raises the question is this the start of a correction, or just a down day in a bull market. According to Goldman Sachs tactical strategist Scott Rubner the market is overbought. He cautions, “I am not buying the dip”. That’s because today has historically marked a turning point for returns on the equities benchmark, citing data going back to 1928. And what follows, of course, is August—typically the worst month for outflows from passive equity and mutual funds. Weak seasonality, stretched positioning and with all the good news already priced in, the index is on the precipice of a summer correction. This is a view Goldman’s trading desk has been leaning into since at least early June.
