While US stock indices are actively storming to new August highs, and there is only talk on the market that the Federal Reserve System will take a pause in the cycle of raising interest rates, or at least will not raise them at such a crazy pace, the latest reports on housing construction and manufacturing indicate that the recession is spreading very quickly to other parts of the economy.
Several economists are already predicting a very bad third quarter for many American companies, saying that people are not yet sensitive enough to the economic slowdown and what it will mean for corporate income and profits.
The housing market index of the National Association of Home Builders/Wells Fargo in August fell to a negative value. Builders' confidence has been falling for the eighth month in a row, and the negative value of the index has been reached for the first time. In a press release, NAHB chief economist Robert Dietz said: "The Federal Reserve's tight monetary policy and constantly increasing construction costs have led to a recession in the housing market."
There is also talk in the market that the Federal Reserve is inflating another bubble in the real estate market with its actions, which could lead to another crisis. The second discouraging economic report was released yesterday. The Empire State Manufacturing Survey index from the Federal Reserve Bank of New York fell by 42 points in August. This was due to a sharp reduction in new orders and shipments. And so, despite all this, the main American stock indexes started the week in positive territory. Yesterday, the Dow Jones index closed for the fourth positive session in a row, and the S&P 500 and the high-tech Nasdaq closed in positive territory for the third time in four sessions.
But, as noted above, the observed bullish rally and stock buyers are walking on "thin ice." The current uncontrolled growth is nothing but a harbinger of a recession. The salvation now is value stocks, not growth stocks. Currently, when the recession in the US is just starting to turn, it is better to settle for less and invest in value stocks that bring dividend income, and when the Fed starts lowering rates, you can shift to growth stocks.
One of the alternatives is the shares of commodity companies. A pullback in this sector would be a good reason for a set of long positions, as supply-side problems will be observed and will only intensify. Yesterday, WTI crude oil fell by almost 3% and closed at $ 89.41 per barrel, but today it has already played back most of this decline.
The S&P 500 index continues to update the highs. In the event of a decline in the trading instrument, the bulls will need to try very hard to offer something in the nearest support area of $ 4,665. This will strengthen the uptrend and form the lower boundary of the ascending channel. It will be possible to talk about a new index growth only after controlling the new resistance of $ 4,319. This is the only way we will see fairly active growth in the $4,376, where large sellers will return to the market again. At a minimum, there will be those who want to lock in profits on long positions. A more distant target will be the $4,433 level. In the case of new weak corporate reports and weak statistics on the United States, about which there has been so much talk lately, only a breakdown of $4,265 will open the way to $4,234, where buyers are reactivating. Nothing terrible will happen even if the bears push the index into the $4,184, where the lower boundary of the ascending channel, observed since July 14 of this year, passes. A breakout of this area will push the trading instrument back to $4,150 and $4,116.