business

Why today is the most important day of the year in the stock market


I’ll just come out and say it: Today is the most important day of the year for the stock market. And if you play well, you could prepare for make a small fortune.

You may have heard. Equities have just had a great month. In fact, the Dow Jones October had its best month.

The reason for the big gathering boils down to one thing: the pivot of the fed.

In other words, investors are hoping that the US Federal Reserve will soon begin to slow its pace of rate hikes. This so-called “Fed Pivot” should take place today. If so, the big stock market rally in October will turn into an even bigger rally in November and December. Investors will say goodbye to the bear market of 2022 and hello to a new bull market in 2023.

However, if the Fed does not pivot this afternoon, the stock market could see all of its October record gains vanish.

I repeat: it is a very important day for the stock market. Whether stocks soar or crash at the end of the year will likely be decided today.

So… what will happen? Let’s find out.

A critical turning point for the stock market

We are at a very critical moment for equities. You could find a dozen fundamental and technical indicators to illustrate this. But maybe the best is the stock market 200-day moving average (MY).

The 200-day moving average is the long-term price trend in the stock market. It is considered the “gold standard” for analyzing long-term price trends. It is short enough to capture weekly price movements, but long enough not to succumb to daily price volatility.

That’s why traders are watching it so closely. Breaks above and below the 200 day MA are often indicative of a reversal of the long-term price trend in the market.

In other words, when a bull market goes below 200 days, it usually means that a bear market is on the way. Conversely, when a bear market breaks back above 200 days, it usually means a bull market is on the way.

We’ve been in a bear market all year. The stock market has consistently traded below its 200-day moving average. But the rally in equities in October was so powerful that the market actually took over that moving average.

Over the past 20 years, almost every time the market has resumed its 200-day MA after a crash, it indicated an uptrend reversal in stocks. See table below.

Source: Bloomberg

Obviously, there are false signals. But they are rare.

Therefore, we have to ask ourselves: with the market resuming its 200-day moving average in October – something it never did in the crash of 2008 before bottoming out – are we facing to a new bull market or the greatest pretense of all time?

The Fed will finally decide the answer to this question today. And I’m cautiously optimistic that you’ll end up liking the answer.

Why this time may be different

I think a Fed pivot is coming soon and a new bull market in equities could form today. And given October’s huge stock market rally, Mr. Market is also clearly hopeful.

Admittedly, this is not the first time that the market has hoped for a “Fed pivot”. In fact, at every previous Fed meeting since May, investors have entered the event hoping for a pivot. They came away disappointed each time because the Fed has yet to pivot. As a result, stocks have crashed all year.

But the November meeting could be different for one big reason: expectations.

In previous meetings, the market consistently underestimated the Fed. That is, the Fed has guided higher interest rates throughout the year in its quarterly summary of economic projections. However, the market never believed that the Fed would raise rates as much as announced. So when the Fed keeps repeating that it is not deviating from its original plan, the market is shocked – and stocks fall.

For example, heading into the June meeting, the market’s maximum expected interest rate for 2023 was 80 basis points below the Fed’s forecast. At the start of the July meeting, the market was about 10 basis points below the Fed. And before the September meeting, the two were pretty much the same.

In other words, over the past three Fed meetings, the market has been either below or in line with the Fed in terms of peak interest rate forecasts.

It’s not true this time around. This time, the maximum market-expected interest rate for 2023 is 5.05%, or 40 basis points. above the maximum interest rate forecast by the Fed for 2023 of 4.65%.

For the first time this year, the futures market is heading for an FOMC press conference with a projected peak interest rate for 2023 well above the peak projected by the Fed.

Source: Bloomberg

The tables have turned in favor of the bulls.

The market was priced for a dovish surprise ahead of the last three meetings – and was slammed in the face when the Fed remained hawkish. The stock market is now priced for a hawkish surprise ahead of this meeting and could soar even if the Fed remains hawkish.

We like this risk-reward setup.

And that’s why we think today could be a great day for the markets.

The Final Word on the Stock Market Recovery

No one knows exactly when a bear market will end or when it will turn into a new bull market.

But we all know that inevitably it will happen. All bear markets eventually end and turn into bull markets.

So that means you should buy stocks today in this bear market. Over 100 years of history indicates that you will make big money over the next two, five and 10 years.

Luckily for us, we have a catalyst on deck today that could end this bear market. So not only do you have 100 years of history on your side, but you may also have the chance of a huge upside catalyst.

Don’t miss this opportunity.

As of the date of publication, Luke Lango had (neither directly nor indirectly) any position in the securities mentioned in this article.

InvestorPlace

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button