Stocks Sell Off as We Look to Flash PMI and Keep an Eye on Oil
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*Stocks continue to trade off; we're waiting for the technicals to flash that it's overdone
*Watching September Flash PMI data tomorrow for oil and 4Q 2023 GDP
*Goldman ups its target for oil; we're watching China data
Stocks are in the red again today as the market absorbs the Fed's policy statement and updated economic projections, which suggest another rate hike is possible before we exit 2023 and fewer rate cuts are on the table for 2024 compared to July.
Another step up in the 10-year Treasury yield ensued as well as the dollar is edging higher, giving the market a bit to think about and digest. Tuesday we laid the groundwork for the Fed meeting and yesterday, we shared that the scenario that unfolded was a potential one.
That potential outcome kept us on the sidelines and led us to keep our inverse ETFs in play ahead of Wednesday's Fed event. Our thinking was we would be able to pick up shares at better prices while the inverse ETFs and cash on hand blunted any market pressure. Indeed, that was what we saw unfold Wednesday afternoon and again today.
We will be checking in with Action Alerts PLUS team members Helene Meisler and Bob Lang for their assessment of the market technicals, including when it is sufficiently oversold to start nibbling on our shopping list of stocks.
September Flash PMI on Deck Friday
Friday brings the Flash September PMI data for the U.S., eurozone, Japan, and U.K. and it will likely show the U.S. economy remains the most vibrant of the bunch. That explains the continued interest in U.S. equities Chris Versace continues to hear about in his meetings, which have crossed over from the U.K. to Finland and Friday to Germany.
One item we are working through is the Fed's updated GDP forecast for 2023, which is now at 2.1%, up from its 1.0% forecast in July. With U.S. GDP coming in 2%-2.1% in 1H 2023 and the Atlanta Fed's GDPNow model that sees 4.9% for the current quarter, the math calls for a sharp drop in the December quarter to a -0.6%. This gives us another reason to closely break down the U.S. Flash September PMI data to see the strength of new order demand.
Goldman Ups Price Target on Oil to $100
We are seeing further price targets being lifted for oil, including from Goldman Sachs (GS) raising theirs to $100. We will continue to monitor the supply-demand dynamics for the commodity. That focus has served us well.
While shares of portfolio holding Energy Select Sector SPDR Fund (XLE) have traded off in the near term, should China's September PMI data out in early October show that government stimulus efforts are taking hold, we are likely to see oil move higher and XLE shares rebound.
As of now, we remain inclined to trim back the position, locking in big gains, should XLE shares become overbought.
Action Alerts PLUS is long XLE.