September has been quite a ride for investors so far. After a nosedive of 4% at the beginning of the month, the S&P 500 has largely clawed its way back.
Inflation continues to fall, with August CPI and PPI data released last week showing that inflation is trending close to 40-year averages. While Core CPI came in hotter than expected, Fundstrat Head of Research Tom Lee interpreted the data as "better than it looks." It "doesn't change the fact that inflation is indeed falling fast," he added. Aside from the statistically lagging shelter component, the biggest contributors to August Core CPI were travel-related – airline fares and (non-shelter) lodging. "Did inflation suddenly accelerate in Shelter and airline fares?" Lee asked rhetorically. "We don’t think so. To us, this looks more like seasonal-adjustment noise."
There appears to be consensus agreement that the inflation numbers will not cause the Fed to push back the rate cuts that officials have recently hinted will begin at next Wednesday's Federal Open Markets Committee (FOMC) meeting. Lee expects that this means tailwinds for stocks. Yet, "we just saw the fourth-worst start for September," Lee reminded us. He and his team found that when looking at the historical "first four trading days" of September and examining the 20 worst instances for stocks, not once in those 20 precedents has September ended up positive. "Sure, history is meant to be broken," he conceded, "but in my view, this is telling us that we are in for a challenging time leading up to Election Day."
Head of Technical Strategy Mark Newton acknowledged that "the stock market has been a lot choppier since July, but outside of Technology, it has mostly held up extraordinarily well. And with regard to Technology, despite this huge sell off, it really has not broken levels to think that Tech is going to weaken from here. In fact, Tech has been an outperformer all week."
"It's really important for trend followers that the S&P 500 gets up above the 5,650 level," he asserted. "That will allow for a pretty decent rally, in my view, but for now, we're still sort of choppy and range bound, held by 5400 on the downside and 5650 on the upside."
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