Stocks Fall as FOMC Meets – U.S. markets fall ahead of tomorrow’s key interest rate decision.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

1/ The Strongest Month for Stocks

2/ Homebuilders Construct a Floor

3/ US Stocks Are Still The Place To Be

4/ A Logical Level for a Pause

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1/ The Strongest Month for Stocks

Despite today’s losses, with October behind us, we are now entering what has historically been the strongest month of the year for the stock market.

According to historical seasonal trends, November is the strongest month for the S&P 500, with an average gain of 1.67% since 1950.

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Source: All Star Charts, with data provided by Optuma

This tells us that seasonality now presents a tailwind for equities. Under this scenario, this could be the best time for the market to experience a rally into the end of the year.

On the other hand, if markets experience a lackluster November—as small-caps did last year—it could present an early warning sign of more selling pressure to come.

2/ Homebuilders Construct a Floor

As we enter the new month, one industry group that continues to pique our interest is home construction (ITB). There’s critical information contained in these stocks, as they provide an excellent overview of the current market environment and investors’ appetite for risk.

As you can see, ITB continues to hold above its 2006, 2018, and pre-pandemic highs.

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Source: All Star Charts, with data provided by Optuma

The fact that homebuilders are holding above a critical shelf of former highs indicates the structural trend for U.S. equities remains intact.

As long as ITB is above this support level, equities could be in the process of building out a durable bottom. 

3/ US Stocks Are Still The Place To Be

It’s hard to imagine that U.S. stocks are outperforming the rest of the world, given this year’s drawdowns. But that is exactly what’s been happening.

Notice the triple-pane chart of the S&P 500 relative to major international indexes, including emerging markets (EEM), MSCI EAFE (EFA), Asia 50 (AIA), and the All-World Ex-US (VEU).

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Source: All Star Charts, with data provided by Optuma

All four international indexes are underperforming relative to the S&P 500 (SPY). It’s a trend that has been in place for a decade now, and it shows no signs of reversing any time soon.

4/ A Logical Level for a Pause

The U.S. dollar rally has produced stiff headwinds for risk assets worldwide. But after more than a year of powering higher, the rally is finally slowing down.

Notice how the U.S. Dollar Index (DXY) peaked at a critical Fibonacci extension level in September.

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Source: All Star Charts, with data provided by Optuma

This critical level continues to act as resistance, indicating a significant amount of supply near the 114 level. As long as this remains the case, global equities could experience a break from the dollar headwinds that have helped fuel the selling pressure this year.

The dollar doesn’t necessarily have to roll over—it just needs to stop rising. At the moment, it could be trading at a logical level for a pause.

Originally posted 1st November, 2022

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