A September to Remember Sets Up Market for an Earnings Season to Forget

It was a mixed day of action Monday that was saved by a late rally. There were some slight concerns about comments by Fed Chair Jerome Powell. Powell indicated that "the economy is in solid shape, and we will use our tools to keep it that way," but the market took that to mean that the Fed may not cut rates as much as the market is hoping.

The dilemma is that the bulls want very aggressive rate cuts, but they also want an economy that is strong enough not to need any rate cuts. Powell doesn’t seem to be embracing that level of dovishness, but his optimism about the economy is helping to provide support.

The indexes rallied nicely in the last 90 minutes of trading, but breadth was just about flat by the close. Strength in Apple AAPL and the Magnificent Seven helped matters once again.

The late rally was also driven in part by the fact that it was the last day of the third quarter, and funds wanted to show that they were holding some good merchandise on their books. The S&P 500 had its best quarter since the fourth quarter of 2021, and there were efforts to go out on a high note. It is also a relief that September did not live up to its reputation as the worst month of the year. The S&P 500 has had its best return throughout the third quarter since 1997.

A pullback during September would have been a great technical setup for a bounce during earnings season and then a year-end run. Instead, we still have a market that is technically extended and has been inching higher but with limited momentum. If we enter earnings season with the market already at highs, there will be greater danger of a selloff if earnings news isn’t as good as expected.

The headlines are blaring about the market at its highs, but that doesn’t mean that it is an easy market to trade.

Have a good evening. I’ll see you Tuesday.

At the time of publication, Rev Shark had no positions in any securities mentioned.