U.S. STOCK MARKET SURGE MAY RUN INTO SCARY SEPTEMBER | CAPITAL STREET FX

 

Capital Street Fx | U.S. Stock Market Surge May Run Into Scary September

Capital Street Fx


A scorching stock market rally that pushed the benchmark S&P 500 to its best August in more than 30 years is entering what is historically the most volatile two-month stretch of the year, increasing the likelihood of market turbulence in the final stretch before the U.S. presidential election.

So far, investors who bailed on the U.S. stock market due to the economic toll of the coronavirus pandemic and increasing unemployment have paid a price. The S&P 500 is near record highs and up 7% year-to-date, including an 11.5% gain since the start of July.

The S&P 500 logged one of its few significant declines since the start of summer on Thursday, falling 3.5% as investors dumped high-flying, technology-focused stocks – sending the market’s fear gauge, the CBOE Market Volatility index (VIX), near a 10-week high.

Overall, the S&P 500 has fallen by an average of 0.5% in September since 1944, the largest decline of any month, and fallen on average during each election year over that span, according to research firm CFRA. The largest average losses have come in cyclical stocks including auto parts, steel and semiconductors. The best-performing months have been April and December.

Among key events that investors are watching for this month is the Federal Reserve’s policy meeting to discuss potential further steps to support the economy on Sept. 16, the central bank’s last meeting before the November elections.

A breakdown in negotiations between congressional Democrats and the White House for another economic stimulus bill may further increase volatility at a time when the S&P 500 is trading near its highest valuations since the late 1990s tech boom.

In addition, the concentration of gains in a handful of tech stocks such as Apple Inc (O:AAPL) and Amazon.com Inc (O:AMZN) leaves the market at a greater risk for a deep sell-off as uncertainties over the presidential election rise, said Charlie Ripley, senior investment strategist for Allianz (DE:ALVG) Investment Management.

On the technical front, the RSI is at 56.84% and suggests that the market is in the positive territory. The current price is trading above all the moving averages. The stochastic is forming a downside crossover. Overall Bias is positive and Short-term buy trades can be initiated with below mentioned Stop Loss and Profit targets.

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