Will the Fed Signal a Pause? Investors Are Waiting

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Stocks could be tightening into a range as investors wait for another big Federal Reserve meeting.

The S&P 500 fell 0.2 percent between Friday, September 8, and Friday, September 15. It was the second straight negative week, and the second consecutive week that prices remained inside the previous range. (Back-to-back inside weeks last occurred in February 2018, according to TradeStation data.) That kind of narrowing range may reflect significant uncertainty, with the potential for a big move in either direction.

Wednesday’s Fed meeting is the likely catalyst for prices to start moving again. With policymakers widely expected to leave interest rates unchanged, attention will focus on guidance for the next meeting on November 1. Traders will first check the Summary of Economic Projections (or “dot plot”) due at 2 p.m. ET. They’ll next monitor Chairman Jerome Powell’s press conference 30 minutes later.

Indications that the central bank is finished raising interest rates could be positive for stocks. Suggestions of higher rates in November could have a negative effect.

Last week had a mix of hawkish and dovish news. Strong economic data, like retail sales and initial jobless claims, might argue in favor of higher rates. However core inflation readings mostly matched estimates. Shelter costs rose at the slowest pace in two years. That’s potentially important because rents are the largest component of inflation, and economists expect them to decline.

Biggest Gainers in the S&P 500 Last Week
Tesla (TSLA)+10%
CVS Health (CVS)+7.6%
Charter Communications (CHTR)+6%
Corteva (CTVA)+6%
J.B. Hunt Transport Services (JBHT)+5.3%
Source: TradeStation Data

Tesla Surges

For the second time in the last four weeks, Tesla (TSLA) was the biggest gainer in the S&P 500. The electric-car maker jumped after Morgan Stanley (MS) said its Dojo computing system could add $500 billion of market capitalization. It also benefited from strikes at General Motors (GM), Ford Motor (F) and Stellantis (STLA).

J.M. Smucker (SJM) was the biggest decliner. The food stock shed 10 percent after agreeing to pay $5.6 billion for Hostess Brands (TWNK).

Utilities were the best-performing sector last week as they continued to rebound from long-term lows. Financials also outperformed as Citi (C) announced cost cuts. Precious metals, which could benefit from the Fed pausing rate hikes, jumped.

Technology stocks broadly fell after Apple (AAPL) released new iPhones.

Homebuilders, which surged in the first half amid strong demand for houses, were the worst-performing group overall last week.

S&P 500, daily chart, showing key technical patterns and indicators.

Charting the Market

The S&P 500 fluctuated less than 65 points between its high and low last week. That was its narrowest range since late June, according to TradeStation data.

Some chart watchers may notice a falling trendline along the highs since July. A move above the resistance could make them expect continued upside. A break to the downside could make them expect a longer period of consolidation.

The first area of potential support is at the September 7 low around 4430. Below that is 4335, where the index bounced in June and August.

Two other charts may impact sentiment.

First, crude oil futures (@CL) ended last week above $90 for the first time since November. Further gains in energy prices may trigger more inflation worries.

Biggest Decliners in the S&P 500 Last Week
J.M. Smucker (SJM)-10%
Netflix (NFLX)-10%
Oracle (ORCL)-9.8%
RTX (RTX)-9.2%
Dollar General (DG)-9.1%
Source: TradeStation Data

Second, the yield on the 10-year Treasury note had its highest weekly close since October 2007. More increases could make investors worry about the economy and stock prices. This could be especially important around the Fed meeting.

The Week Ahead

Aside from the major Fed meeting on Wednesday, this week features several important housing numbers. Few companies report earnings. Attention could also focus on the autoworker strike.

NAHB’s homebuilder sentiment index is scheduled for today.

Housing starts and building permits are tomorrow morning.

Wednesday has crude oil inventories in the morning, and the Fed starting at 2 p.m. ET. General Mills (GIS) and FedEx (FDX) issue quarterly results.

Initial jobless claims and existing home sales are due Thursday.

Nothing important is scheduled for Friday.

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