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There has been no quit in the stock market this week. Stocks have continued on their September rebound course, driven in part by their resilience to selling interest. That resilience has squeezed money in from the sidelines in a fear-of-missing out trade ("FOMO").
It was in China this week, however, where the real FOMO trade hit. Markets there completed their best week since 2008, super-charged by a wave of policy stimulus measures that also helped bolster global markets, including the U.S.
There was a recognition that those measures will help improve the Chinese economy's growth prospects. The timing was perfect in that China's policy moves followed on the heels of the Fed's aggressive 50-basis points rate cut that the market accepted as a proactive step for improving the U.S. economy's prospects.
We can't say these actions have cemented a soft landing for the U.S. economy, but they did provide some cushion for such an outcome and served as a catalyst for the S&P 500 to run to a new record high.
That run looks set to continue.
Currently, the S&P 500 futures are up seven points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 21 points and are trading 0.2% above fair value, and the Dow Jones industrial Average futures are up 75 points and are trading 0.2% above fair value.
That's more like a slow jog, yet there's nothing wrong with that given the run the market has enjoyed. Entering today, the Nasdaq Composite is up 15.8% since its August 5 low while the S&P 500 is up 12.2%.
Those gains may have stretched valuations, but they haven't resulted in any tears from overstretching. That is what many participants are keeping a close watch on, paying extra attention to the price action not only in the mega-cap stocks but also in the cyclical sectors.
They have also paid close attention to the August Personal Income and Spending Report.
Briefly, personal income increased 0.2% month-over-month in August (Briefing.com consensus 0.4%) and personal spending increased 0.2% (Briefing.com consensus 0.3%). The PCE Price Index rose 0.1% month-over-month (Briefing.com consensus 0.1%) and the core-PCE Price Index, which excludes food and energy, increased 0.1% (Briefing.com consensus 0.2%).
On a year-over-year basis, the PCE Price Index was up 2.2%, versus 2.5% in July, while the core-PCE Price index was up 2.7%, versus 2.6% in July.
The key takeaway from the report is that it shows tame inflation figures that support the Fed's progress in getting inflation back to its 2% target on a sustainable basis.
The Treasury market seemed to like the implication of today's report. The 2-yr note yield is down three basis points to 3.59% and the 10-yr note yield is down three basis points to 3.76%. The positive response there has put the stock market on a good footing to start today's session with some forward progress.
