I want equity market proxies to break topside and see 1) what selling pressure arises, if any, 2) if internal measuring tools (Advance-Decline figures, New Highs, sector participation, equal versus cap weight, etc.) confirm or diverge (again), and 3) sentiment readings. 

Last Friday, news of lower unemployment and rising hourly earnings heightened inflation expectations, while ongoing tariff concerns added to market volatility. As a result, equity market proxies pulled back, reflecting continued selling pressure around resistance levels.

Between early December 2024 and early 2025, we highlighted a negative Advance-Decline Line non-confirmation and expected price volatility to continue. We still feel the same. Equity market price volatility will continue deeper into Q1, at a minimum.

Internal measuring tools have moved to be supportive, yet resistance stands, and a negative Advance-Decline Line condition remains. Meanwhile, the Catastrophic Stop Loss model and U.S. High Yield Index OAS-Credit Spreads support the S&P 500’s uptrend.

Stocks bounced sharply higher once support was tested and held, further supported by oversold conditions and relatively favorable inflation reports. Internal measuring tools moved sharply in the right direction. Broader participation and follow-through are now needed.

Worries over fiscal discipline, immigration policies, the recent strong employment report, and several other issues drove the 10-year U.S. Treasury yield above 4.80%. When the Fed started lowering interest rates on 9.18.24, the 10-year yield stood at 3.70%. Who’s missing what?

The oft-discussed price volatility, in both directions, came to the forefront as 2024 ended and 2025 began. With the ongoing global and domestic political backdrop, “tariffs, taxes, inflation,” negative non-confirmations, and interest rates, the odds favor it continues.  

With the Catastrophic Stop Loss Model still favorably positioned (when it reverses and recommends increasing cash, we will follow) and favorable seasonals into year-end, the S&P 500’s price trend remains intact. However, many internal measuring tools are vulnerable.

During Q324, with the S&P 500 near 5700, we highlighted 5900 and 6100 price targets. SPX printed 6099.97 last week. The Catastrophic Stop model remains bullish, but resistance, negative A/D Line divergences again, and a lot of bullishness suggest volatility in the next few weeks.

In November, domestic equity market indices—including capitalization, equal-weight, small, mid-, large cap, value, and growth—closed higher. With complacency (excessive optimism) building and a potentially sloppy start to 2025, price momentum is supportive until the month’s end.

Near-term resistance exists within a bullish price channel and as negative A/D Line divergences are resolved. The Bulls remain in control, but we’re watching for signs that post-election market action is part of a transition to a choppier 2025.

Negative A/D Line divergences, an overbought condition, and resistance can be remedied at any point. But until they are, it is prudent to manage risk and have exposure to an investment strategy that objectively manages risk, i.e., our Smart Sector strategies.

Following the 2016 and 2020 Presidential elections, equities ripped higher into year-end and beyond. Including 2024, I’d call it a three-peat, at least into year-end. The odds favor the S&P 500 follows a year-end rally scenario with volatility in both directions. 

Alongside the U.S. Presidential and Congressional election outcome, how equities react to today's Fed announcement may be significant in the short term. Considering yesterday’s moonshot, please incorporate a strategy emphasizing risk management.

The S&P 500 uptrend continues. Yet, with domestic elections and geopolitical jitters plus a recalibration of Fed interest rate cut expectations, select equity indices, sector proxies, and well-known Large Cap stocks have been sloshing around for months.

Election uncertainty, elevated geopolitical tensions, and pockets of excess optimism could lead to a price pullback or time correction, setting the stage for a post-election rally.  

Our Smart Sector models, which update today, recommended overweighting China at the beginning of the month. Despite election worries, when we combine our Smart Sector strategies with our weight-of-the-evidence approach, the Bulls remain in control.

Two weeks ago, the S&P 500 (SPX) experienced its worst weekly decline in 2024. Last week, SPX experienced its best weekly gain in 2024. Similar reversals have been more bullish than bearish. Equity’s reaction to the Fed’s interest rate decision doesn’t appear to change that belief.

Fed watchers and prognosticators continue to lather on about whether the Fed is behind the curve and whether it should cut 25 basis points (bps) or 50bps on 9/18/24. At Day Hagan, we rely on our models and charts, not opinion, for guidance.

Despite favorable trend and breadth evidence, we recognize that seasonality may introduce periods of weakness as September progresses. Our immediate focus will be on the market’s reaction to tomorrow’s employment report and the FOMC decision slated for 9.18.24. We remain focused on risk management at current levels.