Week of Sep 01 2024

However, a closer look at sector-specific performances and longer-term economic indicators reveals diverging views. While the Financial sector displays robust momentum, the Real Estate sector typically faces challenges in September. Moreover, the saving rate has dipped to 2.9%, its lowest point since June 2022, raising red flags about the sustainability of current consumer spending levels. This contrast between strong market performance and potential economic vulnerabilities highlights the intricate interplay of factors driving current market dynamics.

The Federal Reserve's pivot from focusing on inflation to the labor market, as indicated by Jerome Powell at Jackson Hole, marks a significant shift in the policy landscape. This change suggests that upcoming jobs data will carry more weight in shaping market sentiment and Fed policy expectations than inflation readings. The market's ability to adapt to this new paradigm will be crucial in determining near-term performance.

Looking ahead, key catalysts include the continuation of the current 42-month favorable period in the 20-year market cycle (running until March 31, 2026) and the approach of the next "Ugly Month" in May 2025. Additionally, market watchers will closely monitor labor market indicators and consumer spending patterns for signs of economic health or stress.

Potential risks are twofold. On the downside, a significant correction could occur if consumer spending proves unsustainable or if labor market data disappoints. The extremely low savings rate could amplify any economic shocks. On the upside, sustained rallies are possible, particularly if benign inflation data continues to support accommodative monetary policy and if the labor market remains robust.

Key technical thresholds under observation include the S&P 500's position relative to its 200-day moving average, with patterns above this level historically yielding more favorable outcomes. The core PCE year-over-year rate and the sub-3% savings rate are also crucial indicators to watch. For gold, which has garnered increased attention, the 20-day average Risk Level of 7 is a key threshold. Market reactions in the weeks following such signals may provide important clues about potential future trends.