Stock Market Forecast for the Week Ahead: Neutral
Stock Market Forecast for the Week Ahead: The Summer Doldrums Approach
The Dow Jones, Nasdaq 100 and S&P 500 enjoyed modest gains last week as the three indices advanced roughly 1.1%, 2.3% and 1.3% respectively. Inflationary concerns and talk of the Fed’s monetary policy reaction drove much of the price action and were the suspected catalysts behind initial price movement on Monday and Tuesday. As the week progressed volume and volatility died down and the major indices maintained a tight trading range into the weekend.
That being said, the market behavior experienced late last week may be a sign of what’s to come for the Dow Jones, Nasdaq 100 and S&P 500 as seasonal headwinds work to weigh on market activity. Already, daily trading volume on the major US indices dipped to some of the lowest levels in the year-to-date last week and as summer approaches, the trend may continue until September.
Sluggish market activity can lead to failed breaks with little follow-through which, in turn, can make trading ranges more common presenting an ideal landscape for range trading strategies. That said, the market should continue to derive influence from the same fundamental themes, inflation and taper talk, which will make Friday’s non-farm payroll report a highly important market event as market participants attempt to gauge precisely when the Fed will look to shift its policy path.
Fed Chairman Jerome Powell has repeatedly stated any change would be communicated well in advance which has led investors to suspect recent remarks from some Fed officials could be the start of said communication. Crucially, there has been no official statement and the next opportunity to provide such a shift may present itself at the June FOMC meeting when a new Summary of Economic Projections (SEP) is released.
In the meantime, markets may grasp for direction as liquidity and volatility look set to dry up. Follow @PeterHanksFX on Twitter for updates and analysis.
–Written by Peter Hanks, Strategist for DailyFX.com