The Fed concerned about job growth.

PRE-OPEN MARKET COMMENTS MONDAY – Last week the market waited for Powell’s speech and it wanted confirmation of a September rate cut. He barely said “Hello” and the S&P 500 rallied 50 points. The market seemed poised to move higher no matter what was in the speech and it felt very fabricated (programs).

He said that inflation could be transitory and that it could be a “one off” due to tariffs. We haven’t heard “transitory” from him since 2022 when he got it horribly wrong. He has been reluctant to repeat that mistake and I am sure he struggled to say it this time.

He said that there are employment concerns and that conditions have the potential to worsen quickly. The Fed has shifted from balanced (inflation vs job growth) and that increases the odds for a September rate cut. The rest of the world has been ahead of the curve and central banks have been cutting rates for most of the year.

The first rate cut has been historically bullish for the market and it rallies 1-3% a few months after it according to Goldman Sachs. That explains why the market has been able to tread water at the all-time high in the midst of poor economic news. After the first rate cut investors rejoice believing that lower interest rates are going to stimulate economic growth.

When economic growth continues to slump after the rate cut, reality sets in. Then the sentiment sours quickly and investors start worrying that the Fed waited too long. Some of the biggest market rallies have come when rates are rising, not when they are falling.

How do we trade this? The best trading conditions in the back half of the year come from a sell-off in September and early October. There are opportunities on the short side and that sets us up for a nice year end rally once support has formed. We might not get this pattern.

Even if the jobs report comes in weak (September 5th) the damage might be minimal because it will solidify the odds of a rate cut on September 17th. Given the historical pattern of a market rally after the first rate cut, stocks could continue the current pattern of floating higher. A meager year end rally would result and these conditions have been tough to trade. When the market struggles to advance late in the year it is a warning sign for the next year.

We needed a nice deep pullback in August and September and that does not look likely. The market has been able to recover from every little dip and the selling pressure never gains traction.

We are walking on thin ice and the market has been able to move higher as economic growth deteriorates. That means we have to keep our trade duration very short term. This is a waiting game.

NVDA will report earnings Wednesday and that is the big news of the week. They will be selling chips to China and I am expecting good results. The high valuation will be supported by good growth prospects and we might not see much of a move.

Pre-holiday trading will be an issue later in the week as the volume dries up.

The move Friday seemed like complete “fluff” to me. Powell barely said a word and the market shot 50 points higher. That early peak was not challenged and the market is down overnight.

I don’t see any news this week that could shake us out of the “buy the dip” mentality we’ve seen the last few months. Don’t chase gaps up, wait for the dip. Once support forms, buy strong stocks. When we get a gap down, wait for support and buy. If support never forms that day and the market leaks lower (bearish trend day), hold off and watch for a rebound the next two days. That sets up some overnight bullish swings. This strategy has been working.

Support is at $642 and resistance is at the all-time high.