The Weakest Week of the Year Meets an Iran Bounce and Hawkish Fed
Bitcoin is sharply higher as a hedge against a weakening dollar.
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Hopes of progress in the Iran situation is providing a bid on Monday morning. Oil is lower after Iran’s foreign minister said in Beijing that Tehran has agreed to a plan with Oman to reopen the Strait of Hormuz. Iran’s oil minister suggested some lost production could return by year-end. None of this is confirmed, and we have seen these hope-of-a-deal moves fade repeatedly all year, but positive talk and lower oil are enough to give the market a Monday morning bid.
The upcoming visit by China President Xi Jinping on Thursday is also seen as a possible positive for the AI sector, with the trade relationship and chip access both in play.
Crypto Strength Is the Flip Side of the Bond Problem
Bitcoin and the crypto group continue to show strength, with the iShares Bitcoin Trust (IBIT) indicated up around 3.6% Monday morning. Notably, the group is rising even though the Senate blocked the CLARITY Act last week, the crypto regulatory bill the industry had been pushing.
The strength is because the SEC and CFTC are moving on their own. The SEC issued an exemption that opened a path for trading tokenized stocks on-chain, and the industry decided it didn’t need Congress.
Underneath that is a macro driver that connects to the monetary events I have been writing about. With the Treasury propping up the bond market and the Fed behind on inflation, bitcoin is attracting attention as a “debasement hedge.” The theory is that recent Treasury moves are weakening the dollar, and an asset with a fixed supply, like bitcoin, holds its value better. The same rate and debt pressures that are weighing on stocks are helping crypto.
The Fed Is Not Going Away
The hawkish Fed is not an issue that suddenly disappears because we got through last week’s meeting. The market is working to discount it, but the likelihood of another hike is high, and that keeps the pressure on regardless of any given morning’s optimism.
The bond market is where this shows up first, so that is what I am watching closely. The 10-year Treasury has been flirting with 5%, and whether it stabilizes or pushes through that level determines whether stocks can build on the post-Fed bounce or whether the pressure continues. Lower oil helps, but one morning of relief does not undo a Fed that just told us it intends to bring inflation down faster.
A Weak Seasonal Window
Another issue to watch is seasonality. The week following September options expiration is historically the weakest week on the calendar. Since 1982, the S&P has averaged a decline of about 0.7% in this week, and since 1990 it has been down closer to 1%, with gains occurring only about 22% of the time. Bank of America (BAC) calls this the worst 10-day stretch of the year.
Seasonality is a tendency and not a certainty. A counterargument is that in years like this one, when August finishes positive and the market is up 10% to 17.5%, September has historically performed well.
What makes seasonality matter more than usual right now is that it does not stand alone. If there are some struggles this week, the weak calendar can amplify them, because traders who know the history try to stay ahead of the price action and sell into any weakness. A seasonal tendency combined with a hawkish Fed and elevated oil is a different thing than a seasonal tendency on its own.
Game Plan
The bounce off the Fed has been better than I expected, but I am not going to treat one good week as proof the pressure has lifted. Oil is still elevated, another hike is likely, and the calendar is working against us this week.
I am staying selective and watching whether the quality names on my list keep developing while the macro pressure sits there. That is the tell that matters, not whether the indexes are green on a Monday morning built on Iran hope.
If charts hold up through a historically weak week with the Fed still hawkish, that tells me that we have priced in some substantial negatives. I’d like to put more cash to work, but I’ll stay incremental and patient.
At the time of publication, Rev Shark had no positions in any securities mentioned.
