Is the trend about to reverse? Current situation and FOMC cautions
Soon trend reversal? The current situation and FOMC cautions
Hello, this is Shimoyama.
In last week's newsletter,
on October 21
in the United States,
on the New York Stock Exchange
the Dow Jones Industrial Average
rose by 748 dollars and 97 cents in a single day,
to 31,082 dollars and 56 cents,
marking a substantial advance
as well as in the Nasdaq and
the Tokyo stock market,
buying activity led the way,
and the background
was reported by a leading American newspaper
The Wall Street Journal
that the pace of U.S. rate hikes from December onward
could be reduced,
raising expectations that
the economy would slow less from rate hikes
and therefore demand for stocks would rise.
We conveyed this, but
throughout the week last week,
the stock market
trended upward.
So, can this be considered
a major trend reversal in the stock market?
So this time,
the current stock market
has the trend actually shifted?
and
starting today, November 1,
the注意 points for the FOMC
will be explained.
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Did the stock market reverse?
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Last week the Dow Jones
from a Monday opening of 31,187.32 to a Friday close of 32,861.81
saw a weekly gain of 1,674.49
over six trading days
with a substantial rise.
In particular, the final trading day
Friday, October 28
was up by +828.52,
a 2.59% gain.
This occurred as the market moved to risk-off sentiment
after expectations for further rate hikes faded,
and the results of major U.S. companies such as
Apple and Intel
appeared to exceed market expectations
even in a risk-off environment.
Additionally, according to Bank of America Global Research
in its weekly survey released on the 28th,
the week through the 26th saw
stock market inflows totaling $2.29 billion
the largest since March this year.
For individual equity investors,
the question is whether this movement represents a true trend reversal,
but at this stage
it should be viewed as a temporary correction.
This is because, until late October,
the stock market was in a bear phase due to strong rate hike expectations,
and with the prospect that U.S. interest rates would ease from December onward
and with several large companies reporting solid earnings,
funding into risk assets
increased.
Thus, to solidify a trend reversal in the future,
it would be prudent to consider
- Chair Powell's remarks after the FOMC
- subsequent employment data
- and the midterm elections
as all critical inputs,
and expect that
the pace of rate hikes would slow if December shows a smaller rise.
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Approaching November FOMC and Midterms
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From today the FOMC will be held for two days,
and the Fed is widely expected to continue
to raise rates by 0.75%.
What will influence market direction is
the post-FOMC
press conference by Chair Powell's
remarks.
Of particular interest is the FOMC meeting on December 13 and 14,
and what guidance will be given.
If they were to signal a 0.75% hike in November and
also indicate a similarly large hike in December,
this could dampen U.S. stock markets again,
whereas if Brainerd-like signals imply
the Fed will ease its rate-hiking pace,
then further stock price gains could be supported.
On the other hand, at November's meeting,
there may be no concrete decision to adjust the pace of hikes
starting in December,
and instead, the outcome may depend on the economic data through year-end,
with only a limited degree of pace adjustment considered by some
FRB officials.
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What lies ahead for the stock market?
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After the FOMC ends,
this Friday will see the release of employment data
and next Tuesday
the U.S. midterm elections
will take place.
As a midterm anomaly, there is a tendency for stocks not to fall easily,
but regardless of the Senate or the House results
it is expected to impact the market.
If the Democrats lose,
the government and Congress would be split,
which could dampen sentiment and push stock prices lower temporarily,
whereas if the Democrats secure majorities in both chambers,
the market could gain momentum on expectations for the future.
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Summary
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This week and next, in the stock market
the signals of trend reversal currently occurring
will determine whether they solidify
or remain temporary.
This is a crucial moment.
In any case,
from a predominantly bearish market to a gradual
shift toward a more bullish stance
is easily imaginable,
making it a challenging period for equity investors to judge.
In this newsletter, we will continue to provide weekly explanations at the relevant timing.
However, the market does not always move as expected,
so avoid being swayed by market moves and manage your funds rigorously.
That said, thank you for reading until the end today as well.
Shimoyama Keizo
＊Disclaimer ＊
Please note that while every effort is made to ensure the accuracy and timeliness of the content in this newsletter,
we cannot be held responsible for any losses arising from the information provided.
Thank you for your understanding.