Week of Sep 29 2024

Left tail risks include potentially disappointing US economic data, which could challenge the "soft landing" narrative. There's also uncertainty about the effectiveness of China's stimulus, given the country's structural challenges and the potential chilling effect of certain government actions on business confidence. Right tail risks involve the possibility of stronger-than-expected economic data supporting current market momentum and the full positive impact of China's stimulus materializing in global growth.

Market observers are closely watching key thresholds and indicators. The S&P 500's recent break to new highs is noteworthy, but maintaining these levels is crucial. The 5750 level has acted as a strong gamma pin, especially during options expiration. The NYSE McClellan Summation Index's cycle from below 100 to above 1000 suggests a highly bullish outlook, with historical data indicating a 96% win rate for the S&P 500 over the following year. However, the Russell 2000's impressive 200-day streak above its 200-day moving average hasn't historically been a reliable predictor of future outperformance. Meanwhile, the USDJPY continues to offer insights into global risk appetite.

As October approaches, market participants are keenly eyeing upcoming US economic indicators—including ISM reports and non-farm payrolls data—for insights into economic health and potential Federal Reserve policy shifts. Fed Chair Powell's Monday speech is also expected to clarify the central bank's stance. The market narrative is at a critical juncture, balancing optimism from accommodative policies and China's stimulus against concerns over valuations and global economic stability. These economic releases and central bank communications will be crucial in determining whether the current rally can maintain momentum or if a consolidation phase is imminent, highlighting the delicate balance between policy-driven optimism and underlying economic realities.