S&P 500: The current market description is exactly what we should expect

Did you know that I was coming, right? After marching constantly higher, day after day, during the last five weeks, the Bears finally returned to the game thoroughly of an surprisingly weak job report.

Undoubtedly, the stock market was “configured” for some type of decrease, setback, correction and/or careless period. Remember, the trees (even those driven by AI) do not grow to heaven, well, not for long, anyway. No, in general, Mrs. Market’s game is a type of “two steps forward and one step back.” Even during the best moments, something usually comes out of the carpentry to encourage sales episodes from time to time.

Then, with most of the oscillators shouting that the stocks were exaggerated, the feeling measures moved to the “extreme” optimism zone, the volatility indicators that plumb recent minimum moment, in the cultivation of recent history.

The “something” this time was obvious. Just when the bulls had convinced us that the economy was challenging the warnings of all economists regarding the impact of tariffs on inflation and economic growth, and that good use was simply humming, we obtained a “say what?” Labor Department Report.

Is the economy?

By itself, the main number again during the month of July (73,000 versus 115,000 consensus expectations) was not so bad. And the fact that the highest to 4.2% marking would normally cause much stir in the markets. However, when we learned that the new jobs really created in May and June were reviewed lower by 258,000, merchants began clicking on the early sales button.

The headlines arrived quickly, blaming the “macro growth concerns” for the rapid decrease in both the prices of the shares and in the yields of the bonds. Suddenly, everyone forgot the earnings reports of the “Santa Vaca” of Meta (Nasdaq 🙂 and Mr. Softee (), which made it clear that AI Hater’s crowd is on the wrong side of what is happening in the computer revolution. No, merchants quickly entered into amazing mode and assumed that the economic concerns that had recently been discarded were back.

To be fair, the signs of some economic slowdown have been quite obvious to anyone who maintains the score at home. In addition to Friday’s data, we knew last week that the hiring rate in the June report reached a minimum of seven months. Reading reminded us that the contraction in the manufacturing sector continued in July and that the costs are still moving in the wrong direction.

Speaking of inflation, we must take into account that inflation reading accelerated annually in June. Not in the disturbing degree seen after the clashes of the pandemic -induced supply chain, but the trend is not directed in the right direction at this time.

And then, of course, there were the apparently endless holders on the rates, the threats of rates and the various commercial agreements. All of which include higher costs than someone, somewhere, will have to pay.

Taken individually, none of the above would generally cause a market crisis. But when you mix all the bad news with a market that is configured for a setback, well, a setback is what usually happens.

The question now is whether Friday’s Freakout narrative has legs. Will merchants continue to hit the actions that have enjoyed star races so far this year? Will the macro view of the bears beg the strong profits seen in the main technological names? Will concerns about inflation and the economy make retail investors stop buying and feel in their hands?

The good news

Before running and selling all their stocks of actions in advance of imminent economic fatality, it is important to keep in mind that (a) the bears have been wrong about the economy/inflation for many moons now and (b) could simply be a silver lining here.

You will see, it is worth noting that the Wall Street minions of Mrs. Market loves the easy monetary policy (that is). And one of the upward conclusions of the headlines that promote economic weakness is that the probabilities of tariff cuts from September have increased.

According to the Fedwatch of the CME tool, the probability of a reduction in the rate of 25 bp at the September 17 FOMC meeting is 85.5% in this fine on Monday morning. In addition, the probabilities of another in October were currently 64%. In other words, the chances that the Fed is not reduced between now and the end of the year is only 0.7%.

Thought seems that if the Fed reduces rates a pair/times before the end of this year, the resulting monetary stimulus could compensate for current economic softness. Remember, low rates encourage growth in many areas of the economy. And then, with the potential of a chair of the Super Dovesa that takes over in the first half of 2026, it can be argued that FOMC can be “easy” for longer than expected currently.

It is expected negligence

This upward argument is simply a conjecture at this point and it is not a reason to put the pedal to the metal here. So that we do not forget, the story shows that August/September is historically the weakest period of the year of two months. And our confidence cycle compound (a Ned Davis research creation that combines all cycles of 1 year, 4 years and 10 years since the beginning of 1900) suggests that the S&P 500 will move sideways in a moderately narrow range until the beginning of November.

As such, I, for my part, expect a bit of “carelessness” in the market for a time here. Think about it as an argument between bulls and bears. Or a period of consolidation/digestion as we obtain more clarity about the perspectives for the future. Do not be misunderstood, I will continue to keep my seat on the bull train in the predictable future. However, given the state of valuations and the uncertainty surrounding tariffs, inflation and economic growth, a period of careless/lateral action in the short term term I look good.

Dissemination:

At the time of publication, Mr. Moenning occupied long charges in the following values mentioned: Meta, MSFT: Note that positions can change at any time.

No individual investment tips. The personal opinions and forecasts expressed in this document are those of Mr. David Moenning, which may actually not happen, and that do not necessarily represent those of Heritage Capital Advisors, LLC DBA Heritage Capital Research or its affiliates. Opinions and points of view on the future of markets should not be interpreted as recommendations. The analysis and information in this report is only for informative and educational purposes. No part of the material presented in this report is intended as a recommendation for investment or individual investment advice. Neither the information nor any expressed opinion constitutes a request to buy or sell values or no investment program.