The stock market’s volatility has been low for weeks. The Fed is about to make a late-cycle rate cut. Today’s headlines:
- 7 weeks of low volatility
- Fed is about to cut rates
- Consumer Confidence is high
- Stock market’s seasonality
- Gold miners overbought?
- USD’s momentum
Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.
7 weeks of low volatility
As the WSJ points out, the S&P has not had a daily move greater than 1% in either direction (+ or -) in the past 7 weeks:
Such a long period of low volatility is slightly more bearish than random for the S&P over the next 2 months (below-average 2 month gain of 0.51%)…
… and is mostly bullish for VIX over the next 2 months.
The Fed is about to cut rates while the stock market is near an all-time high. This is rare, because most rate cuts occur when the economy or stock market are already doing poorly.
In the past, rate cuts with stocks near all-time highs were mostly bearish for stocks 1 month later, but mostly bullish 9-12 months later.
If the stock market does go up over the next year as easy money policy boosts stocks, I don’t think it’s reasonable to expect this bull market to last another 3, 4, or 5 years. Many indicators suggest that the economic expansion is late-cycle, including the Conference Board’s Consumer Confidence.
Consumer Confidence’s latest reading exceeded 135. There are only 3 other periods with such high Consumer Confidence:
- January-August 1998
- May 1999-November 2000
- September-October 2018
While this may not be immediately long term bearish for stocks, this is a late-cycle sign for the bull market.
August is just around the corner. From a seasonality perspective, the stock market is about to enter into a weaker time of the year (August-September).
Gold, silver, and gold miners have surged in recent months. As a result, the Gold Miners Bullish Percent Index has surged to the highest level since 2016.
*Bullish Percent Index is a breadth indicator.
In the past, such a high reading for the Bullish Percent Index was mostly bearish for GDX (gold miners ETF) over the next 2 weeks.
And lastly, the U.S. Dollar Index rallied 8 days in a row.
In the past, the USD usually followed through with more gains over the next 1-3 months.
We don’t use our discretionary outlook for trading. We use our quantitative trading models because they are end-to-end systems that tell you how to trade ALL THE TIME, even when our discretionary outlook is mixed. Members can see our model’s latest trades here updated in real-time.
Here is our discretionary market outlook:
- Long term: risk:reward is not bullish. In a most optimistic scenario, the bull market probably has 1 year left.
- Medium term (next 6-9 months): most market studies lean bullish.
- Short term (next 1-3 months) market studies lean bearish.
- We focus on the medium-long term.
Goldman Sachs’ Bull/Bear Indicator demonstrates that risk:reward favors long term bears.
Click here for more market analysis