Title: How will the Post-Election Market Behavior Shape Up: Big Shake-up from FOMC & Market Unpredictability?
This summary was written on Tuesday, November 12 at 12:12 (EST). You can find the corresponding link in the respective video description.
If you want to see the market forecast first, go to slide 6.
Hey there, Market Swingers!
With Trump's victory in the election and the rising excitement in the market, there was noticeably a huge jump in the market.
Surprisingly, while Chinese stocks dipped a bit, the SPX and other stocks’ significant increase took us off guard.
It even more surprising to see the SPX soar by 1.8% overnight just before the election day - as if it had a premonition of the election results!
However, we are a bit skeptical as the FOMC could potentially decrease the market if there was no post-election leap.
So, the question is: Can this rally bounce back from any FOMC’s potential let down and keep going?
Let's explore this further using Fullhapce’s weekly market forecast.
We’ll start by examining the Weekly Market Index Movements.
It seems all key indexes made massive gains, while the VIX went down by 32%.
Let's review Weekly Market Index Movements.
SPX: 5995.54, 4.66% up.
Dow Jones: 43988.99, 4.61% up.
NASDAQ: 19286.78, 5.74% up.
Russel 2000: 2412.4, 8.64% up.
Bitcoin: 80474.19, 17.07% up.
Vix index: 14.94, -31.72% down.
Next, let's look at the Weekly sector performance.
All sectors have increased.
Consumer discretionary, financials, and industrials took the lead.
Let's take a look at some of the reasons why.
The “Trump Red Wave” has prompted many investors to take positions on the optimistic side.
The FED's rate cuts are also positive for the stock market.
Additional financial and economic support from China also fueled the bulls.
Signs that China's economy is growing or improving were also seen as positive.
In addition, favorable economic data from the US also helped the bulls.
After a strong start to the third quarter earnings season, driven by particularly impressive banking results, corporate earnings are generally looking good.
Here are the Things to consider.
Here are a few things to consider.
Trump's victory on Tuesday means that the Republican Party is empowered to move forward with its plans for tax cuts and deregulation.
It also guarantees that there will be no government shutdowns or battles over the national debt for at least the next two years.
The stock market isn't too worried about Trump's financial risks.
The 10-year Treasury yield, which rose briefly on Wednesday, was back almost where it started on Friday.
On Friday, China's top political body wrapped up its meeting and announced a $1.4 trillion fiscal stimulus package, in line with previous media reports, with more stimulus expected.
China's economic data for October beat expectations, showing that the stimulus program is successfully boosting the economy.
Central banks around the world continue to cut interest rates.
Federal Reserve Chairman Powell is wary of rising yields and noted that about 80% of the inflation basket has returned to the 2% target.
The U.S. service sector ISM came in at a healthy 56 in October.
Here we present the Weekly Market Forecast for swings.
Monthly market appears to be leaning bullish.
The weekly market potential is still bullish, but volatility has increased.
Next week is also expected to be volatile around the release of the CPI results on Wednesday.
And the SPX started off last week with a slight dip from the close to 5710, but then rallied from the day before the election, with a big gain on election night.
The SPX continued to rise and closed at 6000.
Investors seem to believe that the long awaited strong rally has begun with the seasonally favorable November, but a disappointing FOMC could put downward pressure on the market.
Our sector analysis suggests that bonds, biotech, and the SPX could fall 1-2.5% on a single day next week.
Indicators are mixed, but showing more bullish than bearish signals.
Our calculations show that next week, starting November 11, we could see a big pullback after the middle of the week, and the SPX could move between 5790 and 6100.
After that, the rally could accelerate if late November housing data comes out favorable for the market.
Let's look at a few more perspectives that might help.
Given the current economic environment, it seems like the bull run is here to stay.
This optimism is driven by the election of Donald Trump, good times for the market, and generally favorable economic conditions.
However, if you compare the current economic data to when Trump first took office in 2016, things are very different.
In 2016, the stocks of the 500 largest companies were much more undervalued than they are today.
Also in 2016, the 10-year Treasury bond was paying less than 2%, less than half of what it is today.
Corporate tax rates were higher than they are now, at 35%, so there was more room to lower them, and the total debt of the country was about 75% of annual GDP, a measure of a country's economic output, so there was more room for more government bonds.
So the market's positive outlook may be overstated, but for now, it looks like the bulls are in control.
Let's look at the counterarguments.
If the October CPI results disappoint the market and the market cannot digest them, the market could potentially fall, which could cause the SPX to move between 5580 and 6030.
Other rationales for this scenario include the following
Germany, Europe's largest economy, is in political trouble due to the failure of its coalition government.
The Bank of England cut its benchmark interest rate by 0.25%, but warned that the recent government budget could lead to a 0.5% rise in the consumer price index (CPI).
Trump's financial and immigration policies could cause inflation to rise.
The weakening of the Japanese yen following the US election may cause the Bank of Japan to raise interest rates in December.
The rising value of the dollar could pose a hurdle to US companies' earnings.
China's stimulus measures have been less effective than market expectations and have fallen short of investor expectations.
Finally, according to a Wall Street Journal report published on November 3, Iran is rumored to be planning a major attack on Israel.
While the contrarian scenario is noteworthy, we believe that the current bull market will recover quickly, even if there is a temporary pullback.
Traders sympathetic to the contrarian scenario may be wise to remain cautious and consider buying at the lows, as buying when market values are low can be an investment opportunity.
The Conclusion is as follows.
We believe the market has entered a full-blown rally.
We expect the market to continue to rally strongly next week, but there may be some temporary downside pressure.
Traders who agree with our forecast may be wise to buy at the lows and prepare for another rally while using protections such as stop losses.
Traders may also be wise to consider both the main forecast scenario and the counterfactual scenario to effectively manage risk.
Thank you for watching.
Fullhapce Intelligence, the best investment partner for swing traders.