Ahead of the FOMC’s September 20, 2023 meeting, rate decisions, and subsequent press conference, various market indices are at critical junctures. The market is betting heavily on the Fed holding the rate at 5.50%, so the indecision shown by the indices is due to uncertainty about the larger picture. It is possible that the FOMC’s statement, the FIOMC’s economic projections, and the press conference will remove that uncertainty; the chances are that the uncertainty will last a few more weeks, if not months.
S&P 500
The S&P 500 is within a symmetrical triangle after breaking below an upsloping flag on August 16, 2023 (see the daily chart above). It tested the broken lower bound of the flag in early September. A break above 4541.00 or a break below 4335.31 will give clues for the direction of the next move.
NASDAQ Composite
The tech-heavy NASDAQ Composite is within a downsloping and narrowing wedge. A break above will complete a bullish flag, and a break below will indicate a top.
Dow Jones Industrial Average
The Dow Jones Industrial Average is at the uptrend line from October 2022 lows, which also coincide with the lower bound of a symmetrical triangle. A break above 35070 will be bullish for the index, and a break below 34029 will be bearish.
Russell 2000
The small-cap Russell 2000 is breaking below the lower bound of a descending triangle, though it is within a support zone, as another support level is below the pattern. This bearish pattern will be complete if the index falls below the 1810.00 level.
Dollar Index
The dollar index broke above a wedge pattern during the week of August 21, 2023(see the weekly chart above). It tested the upper bound of the pattern next week and then moved higher. Presently it is trying to break above a resistance zone between 105.87 and 103.315. A convincing break above will see the next resistance level around 107.89 and then at around 113.045.
Crude Oil
The crude oil broke above an ascending triangle on July 12, 2023 (see the daily chart above). It tested the broken resistance level in the next few days. It has achieved the 261.8% extension target – around 88.90 – of the pattern. The crude also broke above another horizontal channel on September 1, 2023, and achieved a 61.8% extension target – near 91.90 – by September 18. It is at a resistance level of around 93.75. The 100% extension target of the horizontal channel is near 97.00, and the 161.8% extension target is near 105.50.
Gold
The gold has been forming a narrowing wedge since May 17, 2023 (see the daily chart above). A break above 1966.00 or a break below 1921.00 will provide clues for the direction of its next move.
Copper
The doctor copper is also forming a wedge. Its wedge has been forming for a much longer period – more than 12 months (see the weekly chart above). The critical levels for copper are a break above 4.024 and a break below 3.627.
Treasury Yields
10-Year Treasury Yields
30-Year Treasury Yields
The US Treasury yields are at key resistance levels. The 30-year Treasury Yields are at the upper bound – at 4.474% – of an Ascending triangle. The 10-year Treasury Yields are at the upper bound – at 4.362% – of a horizontal channel. There is a higher chance of them breaking above.
Is the Inflation Beast Slain?
Last year around this time, inflation was a big concern for the markets. In April 2022, the year-over-year Consumer Price Index (CPI) increased by 8.3 percent., a level that the country had not seen since the Eighties. The CPI peaked at 8.9% in June and has been trending down since then. Fed’s preferred inflation gauge, PCE, excluding food and energy, peaked in April, and the Core CPI (excluding food and energy) peaked in September. Even though the inflation gauges have not reached the pre-pandemic levels, the trend since their peaks is clearly down.
The rising inflation following the onset of the pandemic in 2021-2022 and the declining inflation in 2023 have been a global phenomenon with few exceptions. The Euro area inflation peaked at 10.6% in October 2022 and since then has declined to 6.9% in March 2023. The IMF pegged the peak CPI for the Advanced Economies in 2022 to 7.3%, which has declined to 3.3% in 2023. For the Emerging Economies, the CPI has declined from 4.0% in 2022 to 3.7% in 2023.
A variety of factors – supply shocks, too much fiscal support during the pandemic, and demographic and immigration shifts – created significant inflationary pressures in the economy. Many of those factors have since eased; however, some have not been completely erased, as the uptick in the CPI since June 2023 shows. Nevertheless, incoming economic data across the world indicates that there is a greater chance that inflation is cooling than rising.
