The S & P 500 is on the verge of something unexpected — especially for September. The broad market index entered the week less than 1% below a record last reached in July. That comes after the benchmark’s best weekly performance since November — rising 4%. Traders are also eagerly awaiting the Federal Reserve’s next policy decision, due Wednesday. The Fed is expected to cut rates by at least a quarter-percentage point. But Jonathan Krinsky of BTIG thinks a move to new highs could be short lived. “Given the run-up the last week into the upcoming FOMC, and the anticipation of a potential 50bps, the set-up is there for a ‘false breakout’ after the decision,” the firm’s chief market technician wrote, referring to the Federal Open Market Committee and the chance that rates might fall half a percentage point. Indeed, expectations for a larger half percent rate cut have been on the rise. The CME Group’s FedWatch tool show traders are now pricing in 63% odds of a 50 basis-point reduction. However, “momentum will likely give a negative divergence on the new highs vs. July, and often times you can get a news failure in something as widely anticipated as this meeting,” Krinsky said. He also pointed to more seasonal headwinds ahead. “While September started off rocky, it bounced back last week and thus it is essentially flat [month to date]. Recall that typically the seasonal weakness runs from mid-September through early October, so we are entering that window this week.” Krinky isn’t the only one on the Street treading carefully with the S & P 500 near record highs. “With the S & P 500 close to our YE 2024 price target again, we remain neutral on the S & P 500 for now,” wrote Lori Calvasina, head of global equity research at RBC Capital Markets. “Investor sentiment continues to worry us. … U.S. equity futures positioning continues to look even more concerning, after hitting yet another, new, all-time high.” “However, after a sharp move lower in 10-year yields, the earnings yield gap for the S & P 500 is starting to head in a more favorable direction for stocks,” Calvasina added. Elsewhere on Wall Street this morning, Evercore ISI cut its price target on Alphabet by 11%, to $200 from $225, citing antitrust worries. “We believe probable medium-term uncertainty over the DOJ antitrust trials and their likely remedies will limit the potential for any near- or medium-term material re-rating,” analyst Mark Mahaney wrote, referencing the Department of Justice. “We believe a ‘worst case’ scenario is a more likely scenario than the market assumes.”
