Introduction
Stocks finished last week Friday on a positive note, with the S&P 500 and Nasdaq Composite closing out their best week of 2024 ahead of the upcoming Federal Reserve meeting. The S&P 500 advanced 0.54%, closing at 5,626.02, coming within 1% of its all-time high set in July. Meanwhile, the Nasdaq Composite gained 0.65%, finishing at 17,683.98. Both indexes logged their fifth consecutive day of gains. The Dow Jones Industrial Average also made significant progress, rising 297.01 points, or 0.72%, to end at 41,393.78.
Investor enthusiasm for large-cap tech and semiconductor stocks helped fuel the market’s recovery, especially after a period of tech sector underperformance. Key semiconductor companies, such as Super Micro Computer and Arm Holdings, climbed 3.4% and 5.9%, respectively. Alphabet saw a 1.8% increase, while Uber surged over 6%.
Quincy Krosby, chief global strategist at LPL Financial, highlighted that while investors remain optimistic, they are still cautious about potential market volatility ahead of the Federal Reserve meeting. Historically, stocks tend to face more challenges in the latter part of September, and this has kept some investors wary of a pullback.
For the week, the S&P 500 rose 4%, while the Nasdaq surged 5.9%, marking the strongest week of the year for both indices. The Dow Jones also performed well, advancing by 2.6%.
Market Focus on Federal Reserve Meeting
Looking ahead, all eyes are on the Federal Reserve's upcoming meeting, scheduled for this week. The central bank is widely expected to lower interest rates by 25 basis points, with the current target rate sitting between 5.25% and 5.5%. Economic data from the past week have only added momentum to the case for a rate cut. The consumer price index for August revealed a 2.5% annual increase, the lowest since February 2021, while wholesale prices rose by 0.2%, in line with market expectations.
John Paulson Advocates for Aggressive Fed Rate Cuts
Billionaire investor John Paulson is calling for the Federal Reserve to implement a more aggressive rate cut of 50 basis points at next week’s meeting. “The Fed is a bit behind the curve. They’ve seen enough data to justify lowering rates, and doing so aggressively would be more effective,” Paulson said in an interview on CNBC’s Money Movers. He also shared his outlook on the U.S. Treasury market and gold investments.
Limited Insights Expected from Fed Meeting, Says Bank of America
Despite widespread expectations of an interest rate cut at the upcoming Federal Reserve meeting, Bank of America has indicated that future guidance on policy moves might be limited. U.S. economist Aditya Bhave wrote in a Friday note, “Given the uncertainty surrounding the economic outlook, we don’t expect significant clarity on the Fed’s future policy direction. Ultimately, the data will guide the way forward, regardless of the Summary of Economic Projections (SEP) or the tone set by Fed Chair Jerome Powell.”
S&P 500 Sectors Hit New Highs
On Friday, three of the S&P 500's 11 sectors—utilities, real estate, and consumer staples—reached 52-week highs. Utilities and consumer staples sectors hit all-time highs, while real estate stocks remain about 13% below their December 2021 peak, which occurred just before the Federal Reserve began its aggressive tightening of monetary policy.
Walmart was a standout in the consumer staples sector, climbing to a new all-time high. The retail giant posted an 18.2% gain over the past month, contributing to a year-to-date rise of over 53%. Walgreens Boots Alliance also experienced a notable uptick, gaining 3.9% on Friday after a year of underperformance.
In the utilities sector, Vistra led the charge with a 5.8% rise on Friday, contributing to a 15.4% gain for the week and a remarkable 121% increase for the year. In the real estate sector, Weyerhaeuser posted a 2.5% gain on Friday and a 6.1% rise for the week. Iron Mountain continues to dominate the real estate sector in 2024, boasting a 67% gain for the year.
Play of the Week: $ULTA (Ulta Beauty)
Resistance Rejection and Gap Play: $ULTA has moved into a key resistance zone around the $382-$383 area, which has previously acted as major resistance. This level was tested on Friday, setting up a potential rejection. Additionally, there is a partially filled downside gap that warrants close attention.
Primary Entry: Look for a rejection in the $382-$383 area for potential short positions.
Downside Targets:
- First Target: $355-$356
- Second Target: Top of the gap area
- Third Target: Gap fill
Entry Point: Monitor for confirmation of a rejection around the $382-$383 resistance level, and look for bearish continuation before entering short positions.
Exit Points:
- Consider taking profits at the $355-$356 level.
- If downside momentum persists, target additional exits at the top of the gap area and then into the gap fill.
Stop-Loss: Set a stop-loss just above the $383 level to manage upside risk. Reassess the position if $ULTA shows strength and breaks through this resistance zone.
Additional Considerations: Keep an eye on broader market conditions, especially in the beauty and retail sectors, as they could influence $ULTA's movement. Before making any investment decisions, conduct thorough research and consider consulting with a financial advisor. This analysis is based on previous price action, which does not indicate future price action.
Conclusion
The market closed the week on a high note, with key indices posting their best performance of 2024. Investor focus is now turning to the Federal Reserve's meeting next week, where an interest rate cut is widely anticipated. However, uncertainty surrounding future monetary policy remains a concern. Sectors like utilities, real estate, and consumer staples are showing strength, while technology and semiconductor stocks continue to drive gains. As the market heads into the second half of September, investors remain cautiously optimistic, with eyes on the Fed for further direction.