Here Comes the September Market Uncertainty

The Dow Jones Industrial Average got whipsawed on Friday over Syrian concerns and uncertainty about the Federal Reserve. However, the small loss came after an extremely volatile day as the index opened higher, then fell nearly 150 points in midday, climbed for solid gains, only to end the day slightly in the red. The high to low swing for the day was a wild 220 points.

Fundamental causes for the exciting ride were accredited to the sabre rattling by U.S. President Obama and Russian President Putin over Syria and Friday’s Non Farm Payrolls report, which was weaker than expected. Global markets don’t like the prospect of higher oil prices and war while they do seem excited about new doubt surrounding the Federal Reserve’s plans for quantitative easing.

The S&P 500 (NYSEARCA:SPY) added 1.4 percent for the week, while the Nasdaq (NYSEARCA:QQQ) put on a weekly gain of 2 percent. The Russell 2000 (NYSEARCA:IWM) gained 0.27 percent on Friday, while the VIX (NYSEARCA:VXX), the CBOE S&P 500 Volatility Index, added 0.51 percent. Gold (NYSEARCA:GLD) resumed its recent rally with a gain of 1.73 percent to $1391/oz. Oil (NYSEARCALUSO) added 2.2% on the week as tensions over Syria put the oil patch on edge.

On My Stock Market Radar

On a technical basis, the Dow Jones Industrial Average (NYSEARCA:DIA) continues stalling at major resistance levels and remains below its 50 day moving average but above its 200 day moving average.

Chart courtesy of StockCharts.com

However, it has put in a near term bottom at the 14,800 level which is now support and it has also recaptured some short term upward momentum as it rebounds from oversold levels.

Similar conditions exist in the S&P 500 (NYSEARCA:SPY) and Russell 2000 (NYSEARCA:IWM) while the Nasdaq (NYSEARCA:QQQ) remains the strongest of the three major indexes. The Dow Jones Industrial Average (NYSEARCA:DIA) will have to break 15,000 and the 50 day moving average at 15,248 before a resumption of the underlying uptrend can be confirmed.

Stock Market News You Can Really Use

The big news items on Friday were the Labor Department’s monthly Non Farms Payrolls report and the escalating rhetoric between Presidents Putin and Obama. The jobs report showed the economy adding just 169,000 jobs in August which was a miss of estimates, and a downward revision for July was also announced. This set of weak reports encouraged investors to believe that the Federal Reserve might not begin its tapering of quantitative easing in September as has been widely expected and so the market rallied on that hope.

Dueling Fed Presidents again muddied the water as Chicago President Charles Evans came out in favor of continuing the current $85 billion/month program while Kansas City President Esther George hinted that the taper could start with a reduction to $70 billion/month, a reduction of $15 billion. The consensus view seems to be a $10 billion reduction announced at the September meeting, however, after Friday’s jobs reports, this view is now in some doubt.

Other economic reports for the week saw overall unemployment dropping to 7.3 percent from 7.4 percent, a decline caused mostly by people leaving the labor force, and July factory orders declining by 2.4 percent. Positive results came from the ISM reports, Fed Beige book and construction spending. On the political front, Syria continues to hold center stage as President Obama works to drum up domestic and international support for his position while Russia’s President Putin says he’ll continue backing the Syrian leadership.

This drama will continue in the upcoming week as Congress and the rest of the world debate the issue. International opinion seems to be gathering around waiting for the United Nations report which is due in two weeks, but domestic opinion is largely opposed to an attack on Syria with a recent Gallup Poll indicating that just 1/3 of Americans support the President’s position. Tuesday will be a pivotal day in this drama when President Obama addresses the nation on television.

Also making news this week will be economic reports, including:

Monday: consumer credit
Tuesday: National Federation of Independent Business Index
Wednesday: Wholesale inventories.
Thursday: weekly new unemployment claims
Friday: retail sales, producer price index, consumer sentiment index

Bottom line: Historically, September is the worst month of the year for the stock market, and this September certainly has more than its share of rattling sabres and uncertainty. Global events are approaching a historic confluence as both Syria and the Federal Reserve’s decision could come the week of September 16. The only certainty is uncertainty, and ongoing volatility can be expected over the short term.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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