Riding The Coney Island Roller Coaster of Market Uncertainty

Could we see a rate hike before a rate cut? That is the question on the table that will most likely be answered in December of this year.  If the Fed doesn’t take action and Wall Street priced in the potential of seven rate cuts, where does that put the S&P 500 for the rest of the year? I’ll tell you why I don’t think we’ll see movement until later this year and where that leaves the major indices until then.

Have you ever seen the Coney Island roller coaster? Sure, it goes up and down, but it won’t be winning awards for the tallest or fastest around.  It looks more like speed bumps.

Recent data, such as the Employment Cost Index report, revealed an unexpected uptick, primarily driven by wage increases. This, coupled with a stable employment situation and a thriving services industry, poses a conundrum for the Federal Reserve. The persistent wage growth is prolonging the delay in achieving the targeted 2% inflation rate.

The Employment Cost Index rose hotter than expected by 1.2% quarter-over-quarter, putting more pressure on keeping rates higher for longer.

With the looming U.S. elections, the Fed is likely to maintain a wait-and-see approach, delaying any potential rate cuts until December. However, if inflationary pressures continue to mount, a rate hike before year-end isn’t off the table—an option analysts are increasingly considering.

In this environment where rate cuts aren’t imminent, attention turns to the S&P 500 earnings multiple as a gauge of market performance. Current projections suggest a value of around 4900 for the index, yet recent fluctuations have left it hovering just above 5000.

I anticipate this seesawing pattern to persist in the coming months, with significant movements unlikely until some key uncertainties, such as election outcomes or inflation trends, are resolved. Using the S&P 500 ETF, SPY, I foresee trading oscillating within a range of 480 to 530 until November.

I’m certainly not trying to be a Scare Bear.  I’m not sounding alarms of doom. Instead, I’m highlighting the delicate equilibrium the market is navigating, with potential downside risks warranting caution and protective measures.  I’m being more selective in my trades and using a smaller risk size than normal.  

How are you handling the latest swings?

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