Stocks Continue Run Up in Anticipation of Fed Rate Cut
It's a tricky environment for those with idle cash and they might have to chase some poor entries.
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Market breadth was negative on Monday, with about 53% of the market declining, but frothy action in a few mega-caps such as Tesla TSLA, Alphabet GOOGL and Oracle ORCL pushed the Nasdaq 100 QQQ up 0.8% to a new high. The other indices hit new highs as well, but there was some mixed action under the surface.
Market participants are looking ahead to the Fed interest rate cut on Wednesday afternoon, and that is creating some desire to add exposure to the best-performing big-cap names. Cutting interest rates is an obvious bullish catalyst, but a big run-up into the news will create increased pressure to take some profits on further upside.
One of the ironies of the market in recent months is that we never seem to entirely discount good news, even when it is heavily anticipated. The good news is that we are celebrating despite the extended technical conditions, which seem to be happening again.
While this is great action for investors who are riding their long positions, it is a very tricky juncture for those with some idle cash that they would like to put to work. The strong momentum is creating fear of missing out, but the action is frothy, and you have to be willing to chase some poor entries if you want to buy.
We will see if market players can stay this optimistic for another day or so, but if we run up so more in front of the rate cut news, it is likely to create a big jump in volatility on Wednesday afternoon. That doesn’t mean you should be selling, but be ready for some big swings.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
