Last week the Federal Reserve lowered interest rates by 0.25%, which was widely expected, and indicated that two more rate cuts are likely before year-end. In his press conference, chairman Powell pointed to the very bad jobs figures that came in through the summer as reasons for their cut. This week we see some data on durable goods orders, consumer sentiment, and personal consumption expenditures, but it is overall a light data week.
Cryptocurrencies sold off hard over the weekend — bitcoin fell 2.5% and ether fell 6.9% — in what looks like the unwinding of a significant number of positions (Bloomberg reports that over 400,000 traders liquidated in a 24-hour period). While crypto markets are subject to their own dynamics, this could well be simple profit-taking after a strong run upward. In related news, we have seen gold rally substantially, moving higher by 10% in the last month.
Overall, the underlying economic data is still weak. Employment is deteriorating, and the restatement of employment figures over the past year has indicated that employment is far worse than previously thought. That said, corporate earnings have been the little engine that could — powering forward no matter the underlying data. As this quarter comes to a close, investors are watching earnings reports very, very closely for any sign of weakness.
Chart of the Week
I came across another indicator that I am adding to my lineup — a thank you to LSEG’s Worskspace team for this one! This indicator is, essentially, an indicator of how fragile the current market is. Of course, fragility is a difficult indicator; just because something is fragile does not mean that it will break. That makes this indicator a poor market timing tool — but it does tell you to be cautious and keep your eyes open for something that may rattle markets too much. As the indicator shows, this market has entered a fragile state.
In other words, be careful out there.
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