Fear Creeps Back Into the Markets
The Negatives Versus Positives

September 24, 2023

Weekly Market Outlook

By Donn Goodman and Keith Schneider


Hello Gaugers.  Thank you for tuning in again.  This is being written on Thursday evening, so I'm not quite sure what tomorrow (Friday) brings, but today we saw some added fear come back into the market.  It was the biggest decline since March.

The past few trading sessions have seen the markets come under pressure, particularly growth stocks.  The reason why, of course, is because the Federal Reserve made it quite clear that they may not be finished raising interest rates.  While they did pause as a result of this week’s Fed meeting, it was broadcasted that more of its Fed Governors are all for additional rate hikes and promised at least one more later this year (November would be our guess).

It is important to note that the Fed did not hike interest rates at their Wednesday meeting.  Nobody thought they would, as evidenced of the very low probabilities priced in the futures markets.  However, they did signal to the needs that there is a real possibility of another 25-basis point increase by the end of the year.  As notably (and hawkish) the Fed’s dot projections indicate, the first rate cut of 2024 will likely not happen until well into next year's second half.

Higher For Longer.

We have pointed out in previous Market Outlooks (one entitled Higher For Longer) our own belief at MarketGauge that interest rates are NOT coming down anytime soon.  While we did recently suggest that the Fed could halt future interest rate rises, we also did allude to the idea that Inflation was ticking up, could go higher, and that rates could eventually see 5.5%-6.0% in the 10-year Treasury.  It wouldn’t take the Fed’s actions to cause this to happen as we have been witnessing the 10-year trending higher just in the past few weeks.

The 10-year Treasury rate now sits at the highest mark since 2007.  More importantly, it gapped up Thursday morning and broke out to a new high.  Because many analysts use interest rates as an important input in their stock valuation, it immediately hit the stock market hard.

Higher rates continue to put pressure on many parts of the economy and stock valuations at a time when we expect the most volatility (September).  It is also pulling investment capital out of stocks and into Treasuries, which at this juncture are considered a more attractive risk-free rate of return.  More on this in a minute.

See the 10-year Treasury breakout picture from Thursday below which shows the 10-year rate over the past year:


Here is the last 16-year picture of the 10-year interest rate.  Notice how low the rates got during the COVID Pandemic as the Fed could not print money fast enough to prop up the economy:


The pain is likely to continue for bond investors.  Remember as rates rise, the price of bonds fall and many investors who thought they could get refuge being in fixed income funds are continuing to see principal losses in their accounts.

Bond traders are expecting further yield increases as the Fed’s “higher-for-longer” message seeps in.  Part of the problem for fixed income assets is that the economy remains so resilient.  Bill Gross, the former bond king, said he expects a third-straight year of losses for Treasuries.  JP Morgan & Chase Co. head Jamie Dimon said the Fed may need to hike further to fix inflation.  Both said this things before Chairman Powell’s commentary last Wednesday.

For borrowers and people depending on interest rate loans, this all means continual hardship.  See chart below:



What the Fed’s rhetoric means for the stock market:

The key aspect of the FOMC hawkish commentary coming out of their Wednesday meeting was whether or not it undermined the “Fed done or almost done with rate hikes”?  We do not think it did.  We believe that while the Fed’s commentary was indeed more hawkish and perhaps a much more negative market reaction, it did not change the trajectory of their stance in fighting inflation.

The truth is that most analysts had predicted that it was likely the Fed would hike one more time later this year.

Beyond the short-term negative reaction in the markets, the Fed used Wednesday’s statement, dots, and press conference to drive home that rates will stay higher for longer.

So far we have had a 5% correction in the past week.  Realistically, that is far more typical than one might expect given the amount of selling and “fear” that came back suddenly in the markets.  See chart below:


The two main concerns the market is now faced with in the near-term. 

The Negatives.

The economy continues to chug along more robust than most economists expected.  Remember most of them earlier this year were calling for a recession by the second half of the year.  That has not materialized.  Yet, as we explore with you in the remainder of this Outlook, there are REAL concerns that two serious problems could derail the soft-landing rhetoric and throw the stock market into a prolonged correction.  They are as follows:

  1. A Growth Scare.

If the markets actually start to believe the Fed’s “higher-for-longer” rate hike threats (and they are starting to) then worries about a growth slowdown will begin to rise.  We will show you some of the charts that are making us believe a slowdown could be upon us.

In the short term, fears of a looming government shutdown, the impact of worsening labor strikes, higher energy prices, and signs of economic weakness could all bring the “growth scare” to light sooner than expected.  This will inevitably cause the stock market to endure a prolonged correction.

  1. Inflation

The second concern is a major bounce back in inflation.  If the Fed suddenly signals it could hike rates more than once it would only be because they are receiving signs that inflation is about to spike and the trajectory of the CPI/PPI numbers rise.  Yes, data these past few months have shown a cooling of inflation pressures, but with the recent rise in energy prices and food delivery problems around the world, it is quite conceivable that inflation could spike.

Let’s now explore some useful charts to show us where these concerns may be showing up:

The Fed is concerned about “steady inflation”.  See projection below:


The CEOs of many of America’s largest companies are worried about the economy.

CEO outlook. "Since the Fed started raising rates in March 2022, CEOs have gradually worried more and more about the economy slowing." See chart below:


Another area of concern in the economy is new and used home sales have screeched to a halt.  This is an important part of the economy, but higher interest rates are preventing buyers from affording a house given today’s mortgage rates.

Existing home sales (I). Existing "home sales dropped 0.7% MoM leaving sales down 15.3% YoY."


US Leading Economic Indicators are declining.  Another area of concern. 

US LEI. "The Leading Economic Index declined in August for the 17th month in a row, the longest down streak since 2007-08. The Conference Board is forecasting a decline in real GDP growth from 2.2% in 2023 to 0.8% in 2024."


Philly Fed Manufacturing is weaker than expected. 

Philly Fed Manufacturing. "Business Outlook came in substantially weaker than expected dropping 25.5pts to -13.5 or 12.5 below estimates…The weakness was in New orders which dropped 26.2 to -10.2."


Very low unemployment rate. 

Unemployment rate vs. SPX. "Historically, the worst time to buy stocks is when unemployment is low (<4%) and rising. This is the current situation."


Fixed income instruments (Treasuries) are becoming more attractive than stocks.  At the money management firm I worked with for almost 25 years, our Portfolio Managers spent considerable time evaluating the earnings yield of the stocks we were investing in.  It is an important and easy calculation that speaks volumes about the attractiveness of a stock versus a bond. Earnings Yield often reflects the valuation of the market as compared to fixed income rates.  This is why many analysts take down stock projected valuations when interest rates rise.  See the calculation below:


(think of a stock at $10 and has earnings of $4 a share, that would be an earnings yield of 4% and if a 10-year Treasury Note is at 5%, the Treasury presents a better opportunity).

Earnings yields vs. US10Y. "With the surge in interest rates again today, the earnings yield for the Russell 3000 index is now below 10-year yields for the first time in 21 years." See chart below:


Continuing tightening by the Fed is cutting into GDP estimates.  The projections, however, are that we may turn the corner by the second or third quarter of 2024.  See chart below:


A looming Government shutdown.  Caused by different factions of the Government who want to push their agendas.  The tug of war between curtailing spending and continuing to spend money which is driving up deficits is at the core of this feud between both parties.  However, history has shown that a government shutdown does not have that large of an impact on the US stock market.   See chart below:


Investor sentiment has turned more negative recently.  We like to show you the AAII (American Association of Individual Investors) bullish and bearish sentiment indicators for a look at what investors are seeing now.  Fear has crept back into the market.  See the bullish sentiment below which turned more cautious in mid-September:




According to CNN’s individual investor reading, Fear has indeed crept back into the market sentiment.  See chart below:


Hedge funds are increasing bets against Discretionary stocks. The following chart shows that many of the more sophisticated investors (hedge funds) feel that consumer spending will continue to slow and negatively impact Consumer Discretionary Stocks.  See chart below:


Now For Some Of The Positives.

  1. Earnings for 2024 are being revised higher.

Earnings projections for 2024 are being revised upward.  As we have often stated, earnings are the engine that drives stock prices.  While other factors including profit margins, revenue growth, and price versus earnings growth are important, at the end of the day if a company is delivering results better than expectations their stock price is likely to appreciate.  See chart below:

  1. Inflation has plummeted.

The data is clear. Inflation has dropped from above 9% last summer to 3.7% today.

It gets really interesting when you add a trendline to this bit of analysis. The Fed’s “ideal” target for inflation is 2%. And that trendline takes us right there.  See chart below:

  1. The Economy is doing well and chugging along. Plus remember some of the early bills passed by this administration that put a great deal ($1.8 trillion) into the economy under the guise of Inflation Reduction Act.  Some of this can be productive and stimulate the economy.
  2. We remain in a bull market which started last October. While August and September have been messy (typical), the bull market is alive and well and still unfolding.  With the Federal Reserve communicating that growth rates in the US are expected to be higher than originally forecasted, their tough “hawkish” tone may just be trying to make sure that they can taper and that the market does not get too euphoric.  This may be a productive and natural way to pull back inflationary pressures.
  3. A record amount of money is sitting on the sidelines. Investors have placed record amounts of assets into money market funds, treasury bills, and various types of fixed income investments, including insurance and annuity contracts.  These accounts are continually bulging with new inflows.  Sometime in the future, investors will feel more confident about investing some, part, or all of these assets into risk oriented equity asset classes and big inflows will hit the equity markets. These inflows can move stocks and move them quickly.
  4. The stock market’s gains during 2023 have been fueled by just a handful of mega-cap stocks. Besides the Magic 7 stocks, there are only a few more large capitalization stocks that have driven the stock market returns higher. There are still 490+ stocks of the S&P 500 that need to play catch up.  Also, look at the discrepancy between the Russell 2000 smaller companies (Small-Cap) and the S&P 500.  The small caps are at a historical discrepancy to the large cap weighted index.  Up several %, the small caps have not participated in the bull market of 2023.  These will present great opportunities for investors when the Fed finally stops hiking interest rates and the prospect of interest rate reductions is in the foreseeable future.  Small caps could really take off then.
  5. The stock market is forward-looking. If the Fed keeps to their plan of not cutting until the second half of 2024, then expect 8-12 months out the market will begin to see this catalyst and start to expect the economy, companies, and earnings to improve.  This will get factored into the market’s behavior well before the actual occurrence.
  6. October is approaching. We will be entering the best period of the year to be invested in stocks.  From October through April, especially in pre-election mode, this is a favorable time to be invested in the stock market.
  7. When the stock market is down in August-September, the 4th quarter is positive.

According to Ryan Detrick of the Carson Group:

“The last 9 times the S&P was lower in both August and September saw Q4 close higher (back to 1981). Higher 9 for 9 and up 9.1% on average”

Now we turn it back over to Keith and his team and their Big View bullet points.  Make sure you watch Keith’s video this week.  Make it a good upcoming week and STAY SAFE OUT THERE!!!  Thanks for reading.





  • All 4 key US indices are at the bottom of their Bollinger bands on both price and momentum according to our RealMotion indicator, indicating oversold conditions. (+)
  • Oil (USO) remains strong at 2023 highs. (+)


  • With the exception of the Nasdaq (QQQ), the 3 remaining key US indices all continue to close at lower lows on a longer-term timeframe and all 4 indices now have extremely weak Trend Strength (TSI) in weak phases with IWM already displaying negative TSI value. (-)
  • Volume Patterns for the major US indices remain very weak with the S&P500 (SPY) and the Russell 2000 (IWM) each showing only 1 accumulation day over the past 2 weeks. (-)
  • All major market sectors were down on the week with especially poor performance in Consumer Discretionary (XLY) and Retail (XRT). (-)
  • 6 of the 14 sectors that we track are now negative on the year. (-)
  • BothClean Energy (PBW) and Solar (TAN) got crushed alongside anything that is real estate sensitive. (-)
  • The McClellan Oscillator has turned decidedly negative for both the S&P50 and Nasdaq Composite ($COMPX), as well as the cumulative advance/decline line hitting new yearly lows for the Nasdaq Composite. (-)
  • This week’s selloff flipped both the S&P500 and Nasdaq Composite according to the New Highs / Lows ratio. (-)
  • Risk Gauges flipped negative after this week’s price action with one anomaly being that High Yield Debt (HYG) continues to outperform the long bond (TLT). (-)
  • The 1-month vs. 3-month volatility ratio (VIX / VXV) has flipped decisively negative with more room to the downside. (-)
  • There’s been a new spike and new multi-month highs for Cash Volatility ($VIX.X) which is now back in a recovery phase. (-)
  • The longer end of the yield curve (TLT) hit new lows. (-)
  • Both Value (VTV) and Growth stocks (VUG) broke down hard this week, with VTV closing below its 200-day moving average and in a Distribution phase. (-)
  • 5 of the 6 members of Mish’s Modern Family have closed below their respective 200-day moving averages. (-)
  • Foreign Equities are under pressure and in distribution phases, however, both Emerging Markets (EEM) and more Established Foreign Equities (EFA) are both outperforming US markets on a relative basis. (-)
  • Despite Soft Commodities (DBA) selling off this week they are still in a bullish phase and outperforming the S&P500 on both a short and longer-term basis. (-)


  • The Russell 2000 (IWM) and the Dow (DIA) are both now near their prices from the beginning of the 2023 calendar year. (=)
  • The number of stocks that are above key moving averages has deteriorated, with the only upside that this indicator is now back at deeply oversold levels on an intermediate and shorter-term basis. (=)
  • On a more positive note, 5 of the 6 members of Mish’s Modern Family are oversold on both price and momentum according to the RealMotion indicator, meaning we will be subject to healthy mean reversion sooner or later. (=)

Stay One Step Ahead of The Markets and Profit
From The Current Volatility With Market Outlook

Keith Schneider

Every week you'll gain actionable insight with:

  • Unique analysis of themes driving the market trends, so you stay of the right side of the trends
  • Powerful inter-market analysis that reveals market turning points early
  • Big View charts and indicators that identify dangers and opportunities
  • Highlights of the most important economic trends, so you're on top of the news flow
Subscribe Now!
Donn Goodman