The calendar is a worry, and there are some signs of too much froth, suggesting a potential stock market pause. The Federal Reserve (Fed) left rates unchanged, while earnings have come in historically strong. It’s another busy week, concluding with the July monthly jobs data.
Beware the calendar
August has been the worst month of the year for the S&P 500 Index over the past decade, while September has been quite troublesome as well. Coupled with various signs that sentiment is getting too excited, a pause in the record rally may be perfectly normal. Meanwhile, gold continues to move to new highs, with a weak US dollar, worries over US-China relations, record monetary and fiscal stimulus, and a dovish Fed all playing a part in the record run.
What does the Fed say?
The Fed left rates near 0% but made it clear it has more ammunition if needed. Additionally, the Fed put things squarely in Congress’s court—more fiscal stimulus is needed as some of the real-time economic data is showing cracks. The LPL strategists don’t expect a rate hike until maybe 2022, which should continue to push the US dollar lower. Remember, a lower US dollar can be inflationary, so that’s a growing worry.
Earnings smash estimates
Earnings have come in well above estimates, with nearly 82% of companies beating lowered guidance, the largest beat rate ever (source: FactSet). Big names like Apple, Facebook, and Amazon all had amazing earnings to announce, as they have benefited from the current environment. As the LPL strategists note, we’d prefer to see wider earnings strength, but with the overall economy still recovering, this might take a while to happen.
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All index data is from FactSet.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC.
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