Closing Thoughts for the Week

Go beyond just the S&P 500 & the Nasdaq 100 and you can clearly see that the markets are still worried. This feels like a little bit of a relief rally for the major averages, but things, such as bonds, precious metals and commodities, are still failing to act as if conditions have meaningfully improved. The Fed decision will be next week’s headline event. The markets have pretty much settled on pricing in a quarter-point rate cut, but I don’t think a half-point move can be completely written off.

Now we’re starting to see a pretty strong consensus across the board that the labor market is contracting, maybe even accelerating, and this could be the domino that ends up tipping the economy. All of that led to very risk-off behavior in the financial markets. If investors are willing to sell off NVIDIA this hard, the ability of the magnificent 7 to carry the market is likely over.

Risk-on/risk-off sentiment looks fairly balanced here in the short-term, but we did get some important data that would support the soft landing/reflationary theme. I am concerned, however, about where the signals are lining up. Treasuries are moving higher, lumber relative to gold has been weak for some time and utilities relative to the S&P 500 have been trending higher for two solid months. I'd be careful of the next few weeks.