Here comes the Fed

Today's Fed decision will give momentum to both the Bulls and the Bears, only no cut will be seen as negative across the Market. A 0.25% cut could be read as too cautious or that the economy is holding up well and a 0.5% cut can be read as the US economy is falling into recession or that the FED is being proactive. Having run up 4% over the last week there is definitely scope for profit taking. Inflation and job data will continue to hang over the Market this year but Q3 results and guidance in October will likely guide the Market direction for the rest of the year.

The US Markets were generally flat again on Tuesday ahead of today's interest rate decision. Volumes remain soft. The VIX remains relatively muted and has held around 17 for a few days - it hit 65 intraday on 5 August, its highest level since Covid in 2020. DJIA -0.04%, S&P 500 +0.03% and Nasdaq +0.20% (Mag7 +0.43%). On an equal weighted basis (our measure) the overall market was up +0.52%, this strength being driven by the Small and Micro stocks. Breadth was 55% (range of 12% to 88% over the last six weeks) with generally soft daily volumes of 7.7b (the average daily volume over the last year of 7.9b). 

One day returns as follows - equal weight basis: Mag7 +0.43% (AMZN +1.1%, NVDA -1%), large +0.13%, medium +0.44%, small +0.81% and micro +0.49%. On a 1 and 2 week equal weight basis; Market +4% and +2.4%, Mag7 +4.1% and +4.5%, Large caps +2.9% and +2.2%, Medium cap +4.4% and +2.8%, small cap +5.1% and +3% and finally Micro cap +3.5% and +2.1%. 

Our risk monitor remains in favour of the larger cap stocks. Small and Micro stocks performed poorly following the July nonfarm release, although as fear subsided they recovered strongly through the middle of August. Interestingly the Small and Micro stocks held up fairly well relative to Large post the August nonfarm figures and Micro have actually outperformed Large stocks over the last week.

Energy led the sector performance yesterday reflecting the continued improvement in the oil price. There was no clear trend in the other sectors. Consumer Cyclicals (Retailers) and Industrials (Heavy Machinery and Construction) were both strong. Utilities and Real Estate were both in negative territory yesterday.

A notable number of 52 week highs in a most sectors: Consumer Cyclicals (Homebuilders and Hotels/Entertainment) Financials across the sector, Industrials (Construction and Machinery/Heavy Vehicles) Real Estate (Residential and Commercial REITs for the last two weeks), Technology (Software and IT Services) and Utilities (Electric & IPPs). Notable high volume in Consumer Cyclicals (across the board) and Technology (across the board) both for the third day running.