As we move into the final week of October—culminating with Halloween on Friday—there’s little to no fright in the market. The short-lived, credit-induced blip from two weeks ago seems to be forgotten. Last week’s CPI print came in cooler than expected, making it hard to believe the Federal Reserve will reverse course on its rate-cutting cycle. Meanwhile, the market generals are leading, and the troops are following. What’s the bear case here?
S&P 500 & NASDAQ 100
The two most widely followed markets in the United States closed at record highs last week. Both remain well above their respective 60-week moving averages, which are also at record highs
Source: Optuma
The Mag 7
The generals are leading—and that’s a good thing. The Roundhill Magnificent 7 ETF (MAGS) is trading at all-time highs on an absolute basis and near record levels relative to the S&P 500.
Source: Optuma
Russell 2000
While it’s encouraging to see the generals leading the charge, it’s perhaps more interesting that the “troops” are following them into battle. The iShares Russell 2000 ETF (IWM) closed the week at an all-time high, breaking out from a nearly four-year consolidation. Those who argue that market strength is merely a function of the top seven names are either lazy or lying to you.
Source: Optuma
The Fed Still Has Air Cover
The Federal Reserve still has cover to continue its rate-cutting path. Last week’s CPI report came below expectations and showed no meaningful rise in inflation. The current Effective Federal Funds Rate sits at 4.11%, while the Two-Year Yield is at 3.48%—a delta of 63 basis points, keeping the odds of two cuts by year-end high.
Source: Optuma
Final Thoughts
With the S&P 500 and NASDAQ 100 trading at record levels, and participation in the rally broad-based—both the “generals” and the “troops” are marching into battle for the bulls. At the same time, the bond market continues to provide cover for the Federal Reserve to cut rates twice by year-end.
To be bearish here is to fight both the tape and the Fed. That seems to be the more frightening proposition.
Dan Russo, CMT
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