The market faces far more sources of volatility than just the Fed.
How the stock and bond market disagree
The stock and bond markets have been in disagreement. While the S&P 500 has moved steadily upward in the past few weeks, which indicates growing optimism about a soft landing, the bond market has been range-bound, indicating continuing concerns over inflation, the growth outlook, and Fed policy. Even as technicians analyze charts to discern the message of the market, the stock and bond market disagreement will be a source of risk and volatility. One source of near-term risk is the negative 5-day RSI divergence exhibited by the S&P 500 as it advanced.
Sources of volatility
We are proceeding through Q3 earnings season, with a number of prominent heavyweights reporting this week. Be prepared for choppiness as individual companies report results.
Looking ahead, we have interest rate decisions from the ECB and the BOJ this week. As well, investors will see an update to the inflation picture from PCE, which is the Fed’s preferred inflation metric, and the quarterly Employment Cost Index, which measures total compensation. While Fed Chair Powell declined to comment on any single union contract, the Fed is likely to see the recent UPS-Teamsters agreement as an indication of continuing strong wage pressures. In addition, gasoline prices have been rising, which will put upward pressure on headline inflation.