Market Pause?

KR Opinion

The market's recent eight-day rally finally hit a pause, but this hesitation may be short-lived. There's potential for one more upward move before we see a top form, which I expect to be a gradual process, as detailed in my recent YouTube video.

Some market commentators are making a big deal about the upcoming revision to employment numbers, expecting a downward adjustment in job creation figures. While this may grab headlines, I don't see it as a game-changer that will dramatically force the market to reassess the economy's health. Another instance of recession talk may be overblown, potentially reflecting nothing more than a moderate market rotation.

As I've highlighted through our database analysis, we're operating in a bifurcated market environment. Only about six sectors are truly performing well, creating a clear divide between the "haves" and "have-nots." I'll delve into these dominant sectors in more detail in the database section shortly. For now, it doesn't appear that other sectors are poised to join this top-performing group immediately.

Our intermediate models remain about 67% bullish in stocks and symbols. This generally indicates a positive market outlook, and until we see further deterioration, I'm not inclined to buy into the recessionary narrative making the rounds.

Today, we'll get the FOMC minutes, which could introduce short-term volatility. However, I don't anticipate any significant surprises. The real focus for many investors will be Fed Chair Powell's speech at Jackson Hole, which is expected on Friday. As mentioned in previous reports, while Powell's comments typically have a dovish tone, I don't expect anything groundbreaking from this particular address.

I believe the broader market configuration remains in a more significant consolidation phase. We're likely still being prepared to push to new all-time highs. Instead, as I discussed in Tuesday night's YouTube video, we may be looking at a broader consolidation possibility, including a minor correction back to key support levels, which I'll outline in more detail shortly.

Markets to Stall (YouTube)

This period of consolidation and a potential minor pullback could set the stage for the next significant move, allowing the market to build a more substantial base if it indeed aims to challenge previous highs. Investors must stay nimble, watch those outperforming sectors, and be prepared for increased volatility as we navigate these key economic reports and Fed communications.

Looking Back on Tuesday’s action

Tuesday, the stock market investors seemed to be holding their breath in anticipation of key events set to unfold tomorrow. The major indices saw modest losses, ending an eight-day winning streak for the S&P 500 and Nasdaq Composite. This consolidation phase reflected a need for stronger buyer or seller conviction at the broader market level.

Individual stocks, however, saw more dramatic movements. Palo Alto Networks surged 7.2% on impressive earnings and guidance, while Eli Lilly gained 3.1% following news of a successful diabetes prevention drug trial. On the downside, Boeing dropped 4.2% after reports of paused test flights for its 777X model due to structural concerns.

The energy sector stood out as the day's biggest loser, declining 2.7% across the board in what appeared to be a coordinated reduction in exposure. Other sectors saw milder movements, with consumer staples rising 0.5% and materials dipping 0.4%.

Trading volume remained light, with decliners outnumbering advancers by nearly 2-to-1 on both major exchanges. The Treasury market rallied, pushing yields lower across the curve as investors bet on a shift towards less restrictive monetary policies by central banks worldwide. This sentiment continued to weigh on the U.S. dollar, which fell against major currencies and hit its lowest level of the year.

The CBOE Volatility Index, or VIX, jumped 8.0% to 15.82, indicating increased hedging activity ahead of tomorrow's pivotal events. These include earnings reports from major retailers, revisions to employment data, a Treasury bond auction, and the release of the Federal Reserve's latest meeting minutes.

As the market digests these upcoming developments, investors will be watching closely for signals that could drive more decisive market movements in the days ahead.

·Nasdaq Composite: +18.7% YTD

·S&P 500: +17.3% YTD

· S&P Midcap 400: +8.3% YTD

· Dow Jones Industrial Average: +8.3% YTD

· Russell 2000: +5.7% YTD