9/22/2024
The Fed finally pulled the trigger on rate cuts, with Jay Powell and the FOMC surprising many, including me, by opting for a 0.50 basis point cut instead of the expected 0.25.
The market had priced this in, the actual announcement barely moved the needle on Wednesday. But by Thursday, the bulls took over, sending stocks higher. Friday saw a slight pullback with the massive options expiration during triple witching.
It makes me wonder—are they playing catch up? We will need to block out the noise and focus on the data as we think about our trading for the remainder of 2024.
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2025 rate projections have the fed funds rate significantly lower
One of the key insights comes from the Fed’s dot plot—a chart that shows each Fed member’s projection for the federal funds rate over the next few years. While these projections often miss the mark, we still watch them closely as another data point.
Comparing the dot plot from June 2024 to September 2024, there’s a notable difference:
June 12th:
Sept 18thÂ
This shift suggests that the Fed might be anticipating a slowdown, which raises another question—did they wait too long to cut rates? If so, they could risk slowing the economy more than intended.
Of course, we won’t know for sure until after the fact—our indicators are always lagging. But it’s something we all should keep in mind moving forward. Blocking out the noise and focusing on the data will be crucial in navigating these next few months.
Central Banks and the Bigger Picture
What we do know is that central banks are prioritizing financial stability over strict price control, which is usually bullish for stocks. The Fed is now pulling rate cuts forward to 2024-2025, and both U.S. and global liquidity are expected to rise into next year. This points to more upside for equities. Meanwhile, the Bank of Japan is likely to stay on the sidelines, avoiding any major disruptions.
The Election Looms: More Volatility Ahead?
Looking ahead, the next big event on the horizon is the U.S. election. Historically, markets don’t like uncertainty, so I expect volatility to creep in as we get closer. This chart below from TastyLive is a good data point to confirm a bearish Sept, and a volatile Oct on average.
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Seasonal Headwinds: Stay Cautious
From a seasonality standpoint, we're entering a historically weak period for stocks—the tail end of September and early October tend to be bearish.
Will this year follow the same pattern? Hard to say, but I like to keep things simple.
My Simple, Boring Style: Buy Low, Sell High
I’m a straightforward trader. I like to buy low and sell high. With markets continually hitting new highs and a binary event like the election just around the corner, I’m staying cautious. My positive delta is shrinking week by week as I dial back exposure.
But that doesn’t mean I’m out. When I see opportunities—like during market rotation or earnings season—I’m selling premium. The good kids caught several trades this week that closed profitably the next day. There are still chances out there, but this isn’t the time to go "all-in" on risk. Buying at all-time highs in the short term is tough for me. Instead, I’m focused on trades that benefit from theta decay or swing setups in certain sectors.
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My Plan Moving Forward
While I subscribe to a few research services, the outlooks are mixed—some predict SPX could hit 6,000 by year’s end. But let's be real, no one truly knows what the market will do. It’s always educated guesses with varying levels of support behind them. In terms of our longer term portfolio remember the market has a positive drift. I think keeping positive delta makes sense. I wrote about it here:
I’m going to stay nimble and see what the market gives us. My strategy is simple: take trades that align with my style and avoid chasing tops.
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Weekly Update
Spy: another new all time high. We are very extended from the moving averages, we can of course keep going higher, but I would like a little pull back before I add too much risk.
QQQ- we broke through the down trend with a nice close. QQQ might continue higher, but it needs to hold this trend line. META is by far the strongest.
RSP- equal weighted SP500 looks good too. This proves the overall market is strong.
TLT- Still looking good, just taking a little rest here. Rate cuts were already priced in .
GLD- I really hope you all took this trade with me from a few weeks ago. However, this strength in gold is a bit concerning from a risk off perspective. This is a warning sign.
VIX/VX- Volatility is down. I think (hope) we see some increase as we get closer to the election. The market hates uncertainty, this should be reflected in VIX
IWM- Small caps should benefit from rate cuts as smaller companies depend on debt for growth. As rates come down they should benefit! We have a break over the pennant.
XLU hit new all time highs- I hope you caught the trade with me on Thursday. However, this is another sign of risk off rotation. Just another sign we should be careful on too much risk.
Upcoming Dividends
There are no dividend aristocrats or dividend kings with Ex-Dividends this week!
Week Ahead
MU and COST earnings!
That’s all for this week. Mr Money Maxwell Inner Circle members make sure you checkout the youtube video I made just for you! Click that hyperlink to join the inner circle for trade ideas as well as strategies for this market!
Happy Trading, Good Kids!
-$Maxwell
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