With a strong finish to October, the market is poised for a rally, but investors may have to jump a few more hurdles before they are convinced.
Investors are fearful because of last year's December downturn.Traders work, as a screen shows Federal Reserve Chairman Jerome Powell's news conference after the U.S. Federal Reserve interest rates announcement, on the floor of the New York Stock Exchange, October 30, 2019.The market is closing out October from a position of considerable strength. Consider:2) The S&P 500 is sitting at an historic high with signs of healthy market rotation emerging this month.
3) The Fed said it will assess the "appropriate" path for rates, which the market is interpreting to mean the Fed "backstop" is still present, i.e. the Fed will step in and cut rates again if it needs to.5) Perhaps most importantly, the market is entering its seasonally strongest two-month period of the year. November is the second best month for the S&P 500 since 1950, while December is No. 1, according to the Stock Trader's Almanac.
So why isn't the markets acting like it's full-speed ahead? Conviction for a further rally is remarkably lacking. "Trading volumes have been very light because a lot of traders are sitting on the sidelines," Peter Tchir from Seaport Securities told me. "The hedge fund community seems to have very small positions. Some feel they've had good enough returns and they prefer to lock the returns in rather than chase further advances. And the news flow from the White House is very confusing.
Still, parts of the trading community do believe that the Fed's three rate cuts have offset some of the global risks. The steepening yield curve engineered by the Fed notably helped banks. Other cyclicals like Technology also rose in October, and former defensive leaders like Consumer Staples and Utilities were laggards:
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