A Month Later And We're Still Sitting In Traffic.

The S&P 500 gained 0.22% this week with Friday's close at 5,751.07. Friday's close is a new all-time high weekly close, the third consecutive week to finish at a new all-time high. The index has now increased four weeks in a row, and seven of the last eight overall.

The index traded up to 5,765.14 on Monday, a pinch below our all-time high at 5,767.37, and then reversed lower for most of the week. The narrative here was Fed Chair Powell's speech and press conference on Monday (click here) where he threw cold water on the idea of another -0.50% interest rate cut at the November Fed meeting. Powell stated "This is not a committee that feels like it is in a hurry to cut rates quickly" (click here). The S&P 500 digested this news by parking itself in neutral over Tuesday through Thursday, closing each day between 5,699.94 and 5,709.54. Friday's jobs report (click here) then gave the index a jolt to the north and turned what was a red week into a black week, i.e., all of this week's advance can be attributed to Friday's gain of 0.90%.

Despite last week closing in the black and at a new all-time high weekly close, the S&P 500 didn't even trade above last week's high this week. In last week's Update we harped on the fact that crossing into the 5,700s hasn't brought any eager buying interest into the marketplace, and that still remains the case as of today. It's been a difficult "breakout" to quantify, as on a closing price basis the S&P 500 is still only 1.48% above July's high at 5,667.20. The train is not yet ready to leave the station.

However, the train isn't deboarding either. The fact the S&P 500 stepped on the brakes at the ~5,670 level on Tuesday, Wednesday and Thursday is an encouraging sign. In technical analysis there's a theory that states "past resistance becomes future support". It's rooted in behavioral finance and the idea that participants have memory. It's quite common for the S&P 500 to hurdle "resistance", and then pull back to said "resistance", only to then find support from there. Taking a look at the chart below, it's straight out of the textbook...or ready to be used in a future textbook.

As we wrote last week, as long as the S&P 500 sustains above the thick horizontal red line the train will get moving to the north at some point.

Any trade back down below the horizontal red line and we'll be writing about the September trade to new all-time highs as a failed breakout. The S&P 500 flirted with breaking down below the horizontal red line last week, but support arrived and lifted the index back rounding to the 5,800 level. That's probably the biggest takeaway from this past week, in terms of price action.

Six of the 11 sectors within the S&P 500 closed higher this week, and three of them by more than 1%. The big winner was the energy sector, which gained 6.87% this week and was obviously jolted by the disappointing events in the Middle East (click here). Financials and utilities also gained more than 1% this week. Four sectors fell more than -1% this week - consumer discretionary, real estate, materials and consumer staples. The S&P 500 Equal Weight Index (SPXEW) and the S&P 600 Small Cap Index (SML) both closed lower on the week by -0.26% and -0.75% respectively.

The biggest news in the equity space this past week was actually over in the land of emerging markets, specifically China.

The iShares MSCI China Index Fund (MCHI) gained 11.79% this week - after gaining 19.53% the week prior. The two-week, 33.61% advance for MCHI is easily the largest two-week advance for MCHI since inception. MCHI and the emerging markets have been dead money for a long, long time. However, this type of price thrust is something that deserves everyone's attention, and it's already got David Tepper's attention (click here). We view this in support of one of our main points from last week's Update: We think there is finally lasting value in long-term investors diversifying within their equity allocation.

Zooming over to the bond market, interest rates jumped higher across the yield curve this week. The yield on a 5-year United States Treasury bond jumped 30 basis points to finish the week at 3.81% and 10-year United States Treasury bonds rose 21 basis points to close at 3.96%. Perhaps the most interesting element at this point to the Fed pivot has been how interest rates across the curve have moved higher ever since the Fed lowered the federal funds rate (click here).

We don't believe this is all that spurious as our base case is for intermediate- to long-term interest rates to remain range-bound while short-term interest rates are lowered, thus steepening the yield curve. We believe this is why financials are showing relative strength and it's also a sign of economic strength, in relative terms. If the bond market was pricing in a recession, then we would see intermediate- and long-term Treasury bonds bid, and thus have yields moving lower. That's not what we're seeing at this point.

After Powell's speech this week the market no longer has a -0.25% cut or a -0.50% cut as a toss-up. The Fed will be cutting -0.25% on November 7 (click here).

Using the iShares 20+ Year Treasury Bond Index Fund (TLT) as a proxy for the bond market, we can see how TLT failed right at "resistance". The shaded red horizontal region has held, for now, and that should lead us to see the yield on a 30-year United States Treasury bond head back toward the 4.5% level.

As for the week ahead, can the S&P 500 finally slam on the gas pedal? Can we finally trade into the 5,800s? We have plenty of catalysts this week - there's a Fed speaker every single day and we'll get inflation data on Thursday and Friday. The events unfolding in the Middle East will play a role too, especially if crude oil gets moving to the upside (crude was up 9.09% this week). Higher energy prices are not ideal given their impact on inflation data. As always, another exciting week awaits!

S&P 500 Primary Trend - Up!

The S&P 500 closed the month of September on Monday. The index closed the month higher by 2.02%, rising for the fifth consecutive month. September also marked the fifth consecutive month to close at a new all-time high. Frankly - and given the back-to-back upside reversals we saw in August and September - it's clear that participants are demonstrating a salacious appetite to own stocks, so much so that they've been willing to bid stocks at all-time highs month after month after month.

September's five-month winning streak is definitely a good omen.

The S&P 500's price action following five-month winning streaks has seen the index close higher either 27 or 28 times out of 29 total instances over the forward 9-12 months.

Yes, this can continue. Put differently, anyone who is selling stocks based on a five- month winning streak is ill-informed.

As we've written each and every week for virtually the entire last year, long-term investors remain best served with an equity overweight across their portfolios' asset allocation and relying mostly on passive investing methodologies. The goal is to "be right and sit tight", and since it's not broke, don't try to fix it.

Ironically, "bull markets" are like riding a bull in a way; they do everything they can to throw you off of 'em.

It's far easier to believe in the idea that this can't continue rather than the idea that this can continue. There will be volatility, the bull will "buck", but virtually all the evidence that's known and knowable as of today would suggest the S&P 500 works its way from the lower left to the upper right over the remainder of 2024 and into the first half of 2025. It's a time to invest as if the best is yet to come while being prepared in the event the worst is just around the corner.

Happy Sunday!

Steve & Rick

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