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![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-16.png)
VIDEO: We discuss why markets will be tricky over next 8 weeks (duration 7:07).
Post-Labor Day, the S&P 500 started September with a -2% decline. This is the worst start since 2015 (-3%) and 5th worst ever since 1928. As many of our clients know, we have flagged this period from July 31 to election day as generally tough (“eek”) and the tribulations of this completed August is a stark reminder of the election year dynamics. While historical seasonality says stocks should generally struggle between now and election day, the fundamental reality is this “weak seasonality” is in the context of an extremely strong stock market:
- The S&P 500 has risen in 7 of the 8 months of 2024. This is a sign of a very strong market. In fact, in the past 5 years, only 2021 is similar. And the fact that the S&P 500 gained in August is also impressive consider the toppling seen post-July FOMC (7/31) into Tokyo Black Monday (8/5), when S&P 500 suffered a -7% drawdown.
- This is the key to keep in mind. We are in a very strong market and therefore, if there are meaningful dips between now and election day, this will prove to be a buying opportunity. At this moment, we do not have enough information to know when this dip will take place.
- Mark Newton, Head of Technical Strategy, sees the equity markets as still solid for now with near-term downside limited to S&P 500 5,500 or so (maybe 5,478). This suggests that for now, Newton does not see a larger decline at hand and thus his view is we more likely push to new highs first.
- We list the fundamental catalysts over the next 3 weeks and how markets interpret these will govern how markets fare near term, in our view:
– 9/6 Fri: August jobs report
– 9/11 Wed: August Core CPI
– 9/18 Wed: Sept FOMC rate decision - On jobs, the positive or negative interpretations are as follows:
– negative: strong (consensus +165k) risks Fed backpedaling on cuts
– positive: decent (>110k and <165k) means “soft landing” - On Core CPI, the positive or negative interpretations are as follows:
– negative: Core MoM >+0.20% = “hot”
– positive: Inflation falling like a rock <– our view - On FOMC, the positive or negative interpretations are as follows:
– “hawk” Fed: cuts -25bp but doesn’t confirm more, negative
– “panic” Fed: cuts -50bp, negative for stocks
– “easing to neutral” Fed: cuts -25bp and says more to come, positive - To me, this means the fundamental catalysts are “front loaded.” And at this moment, we believe this means the weakness in stocks in September is front loaded. But that is just based on a fundamental view.
- The important metric to watch is the VIX. Volatility is rising. The VIX surged 33% to 20.7 yesterday and the VIX term structure inverted where the 1 month (1M) contract has a higher reading than the contract expiring in 4 months (4M). This inversion is a sign that the market is seeing higher volatility near-term.
- I have no idea why the VIX surged so much Tuesday. But this is something to watch. But this is also brings some clarity. The VIX peaking and declining often signals the peak in fear. The problem is we just don’t know if the VIX has peaked yet. And we also need to be mindful the VIX surged to nearly 70 in early August.
- We have pulled together a lot of seasonal analysis of the VIX below. And the data is pretty consistent:
– since 1990
– in election years, the VIX peaks late October
– since 1928
– delivered volatility peaks around first week of November - So, if purely volatility seasonals were at play, the VIX is not below 15 until late October. This is something to be mindful of between now and election day.
- But as we highlighted many times, this does not change that we see stocks finishing strong in second half of 2024. That is, we do not believe the peak for 2024 has taken place. This is just the reality of the treachery of the next 8 weeks.
BOTTOM LINE: Small-caps lead, Fed is dovish
Keep in mind the Fed is dovish and there is a focus on keeping labor markets strong. We could be seeing turbulence for the next 8 weeks, but this is also in the context of a very strong stock market in 2024. One where the S&P 500 has gained in 7 of the last 8 months.
And with inflation softening, the mandate focuses on strong jobs. That acts as an implicit “put” on the equity market, as falling asset prices would threaten to weaken labor markets.
Given the dovish Fed, this remains our 2024 playbook:
- Stick with what is working
- Small-caps IWM -0.36% IJR -0.25%
- Financials and Industrials XLI 0.09% XLF -0.07%
- AI/Tech NVDA -1.65% CDNS -0.84% ARM AMD 2.78% AIQ -0.29%
- Ozempic-related LLY -1.07% NVO -1.28%
- Bitcoin & Proxies
$BTC MARA -1.83% PYPL 0.78% COIN -3.60% MSTR 2.00% SMLR -2.27%
But as we noted multiple times, we stick with the top 2 (small-caps and financials and industrials)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-2-1024x840.png)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-3-1024x808.png)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-4-1024x843.png)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-5-1024x831.png)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-6-1024x830.png)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-10-1024x821.png)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-8-1024x819.png)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-9-1024x778.png)
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/08/image-488-1024x842.png)
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Key incoming data September:
- 9/3 9:45 AM ET: Aug F S&P Global Manufacturing PMI
- 9/3 10:00 AM ET: Aug ISM Manufacturing PMI
- 9/4 8:30 AM ET: Jul Trade Balance
- 9/4 10:00 AM ET: Jul JOLTS Job Openings
- 9/4 10:00 AM ET: Jul F Durable Goods Orders
- 9/4 2:00 PM ET: Fed Releases Beige Book
- 9/5 8:30 AM ET: 2Q F Non-Farm Productivity
- 9/5 8:30 AM ET: 2Q F Unit Labor Costs
- 9/5 9:45 AM ET: Aug F S&P Global Services PMI
- 9/5 10:00 AM ET: Aug ISM Services PMI
- 9/6 8:30 AM ET: Aug Non-Farm Payrolls
- 9/9 9:00 AM ET: Aug F Manheim Used vehicle index
- 9/9 11:00 AM ET: Aug NY Fed 1yr Inf Exp
- 9/10 6:00 AM ET: Aug Small Business Optimism Survey
- 9/11 8:30 AM ET: Aug CPI
- 9/12 8:30 AM ET: Aug PPI
- 9/13 10:00 AM ET: Sep P U. Mich. Sentiment and Inflation Expectation
- 9/16 8:30 AM ET: Sep Empire Manufacturing Survey
- 9/17 8:30 AM ET: Aug Retail Sales Data
- 9/17 9:00 AM ET: Sep M Manheim Used vehicle index
- 9/17 10:00 AM ET: Sep NAHB Housing Market Index
- 9/18 2:00 PM ET: Sep FOMC Decision
- 9/18 4:00 PM ET: Jul Net TIC Flows
- 9/19 8:30 AM ET: Sep Philly Fed Business Outlook
- 9/19 10:00 AM ET: Aug Existing Home Sales
- 9/23 8:30 AM ET: Aug Chicago Fed Nat Activity Index
- 9/23 9:45 AM ET: Sep P S&P Global Manufacturing PMI
- 9/23 9:45 AM ET: Sep P S&P Global Services PMI
- 9/24 9:00 AM ET: Jul S&P CoreLogic CS home price
- 9/24 10:00 AM ET: Sep Conference Board Consumer Confidence
- 9/25 10:00 AM ET: Aug New Home Sales
- 9/26 8:30 AM ET: 2Q T 2024 GDP
- 9/26 10:00 AM ET: Aug P Durable Goods Orders
- 9/27 8:30 AM ET: Aug PCE Deflator
- 9/27 10:00 AM ET: Sep F U. Mich. Sentiment and Inflation Expectation
- 9/30 10:30 AM ET: Sep Dallas Fed Manuf. Activity Survey
Key incoming data August:
8/1 8:30 AM ET: 2Q P Nonfarm ProductivityTame8/1 8:30 AM ET: 2Q P Unit Labor CostsTame8/1 9:45 AM ET: Jul F S&P Global Manufacturing PMITame8/1 10:00 AM ET: Jul ISM Manufacturing PMITame8/2 8:30 AM ET: Jul Jobs ReportTame8/2 10:00 AM ET: Jun F Durable Goods OrdersTame8/5 9:45 AM ET: Jul F S&P Global Services PMITame8/5 10:00 AM ET: Jul ISM Services PMITame8/6 8:30 AM ET: Jun Trade BalanceTame8/7 9:00 AM ET: Jul F Manheim Used vehicle IndexMixed8/12 11:00 AM ET: Jul NY Fed 1yr Inf ExpTame8/13 6:00 AM ET: Jul Small Business Optimism SurveyTame8/13 8:30 AM ET: Jul PPITame8/14 8:30 AM ET: Jul CPITame8/15 8:30 AM ET: Jul Retail Sales DataTame8/15 8:30 AM ET: Aug Empire Manufacturing SurveyTame8/15 8:30 AM ET: Aug Philly Fed Business OutlookTame8/15 10:00 AM ET: Aug NAHB Housing Market IndexTame8/15 4:00 PM ET: Jun Net TIC FlowsTame8/16 10:00 AM ET: Aug P U. Mich. Sentiment and Inflation ExpectationTame8/19 9:00 AM ET: Aug M Manheim Used vehicle indexTame8/21 2:00 PM ET: Jul FOMC Meeting MinutesDovish8/22 8:30 AM ET: Jul Chicago Fed Nat Activity IndexTame8/22 9:45 AM ET: Aug P S&P Global Manufacturing PMITame8/22 9:45 AM ET: Aug P S&P Global Services PMITame8/22 10:00 AM ET: Jul Existing Home SalesTame8/23 10:00 AM ET: Jul New Home SalesTame8/26 10:00 AM ET: Jul P Durable Goods OrdersMixed8/26 10:30 AM ET: Aug Dallas Fed Manuf. Activity SurveyTame8/27 9:00 AM ET: Jun S&P CoreLogic CS home priceTame8/27 10:00 AM ET: Aug Conference Board Consumer ConfidenceTame8/29 8:30 AM ET: 2Q S 2024 GDPTame- 8/30 8:30 AM ET: Jul PCE Deflator
- 8/30 10:00 AM ET: Aug F U. Mich. Sentiment and Inflation Expectation
Economic Data Performance Tracker 2024:
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/09/image-17.png)
Economic Data Performance Tracker 2023:
![Entering tricky 8 weeks into election day. Watch the VIX as this signals if pain is front loaded](https://cdn2.fsinsight.com/wp-content/uploads/2024/08/image-153.png)