Hi YXI friends,

As we enter October tomorrow, here is a bird-eye view of the market to start the week.

In this article, we analyse the broader trends in SPY, QQQ, and TLT, the recent Fed liquidity reduction, China’s liquidity upswing, and October seasonality for SPY, QQQ, and IWM (make sure you check these charts in section 6).

I also released a video update earlier in the day, which you can access via the link in section 2.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. The Big Picture - Bull Market and Benign PCE

The big picture is that the Fed has cut rates while we are firmly in a bull market.

This year has been an outstanding year so far by historical measures, where equities rose for 3 consecutive quarters.

The above table shows all the years where SPY rose by 3 consecutive quarters. In all of the occasions except for 2007, equities rose in Q4, often by more than 4%. The odds are, 2024 will finish strongly, even if we get a short-term pullback in October.

However, I remain vigilant to the possibility of 2007 playing out, as highlighted in my previous comparison here:

Friday’s PCE data surprised to the downside, with both the Headline PCE and Core PCE coming in at 0.1% MoM, below the 0.2% expectation.

Now, the Headline PCE is only 2.2% YoY, even lower than the September FOMC’s projection of 2.3% by the year-end. Core PCE is a touch hotter than July on a YoY basis, but just inches away from the FOMC’s projection of 2.6% by the year end.

These PCE data support the Fed’s rate-cut narrative, as the Fed and the market now firmly focus on the labour market.

2. Monday Webinar Recording Below

I have put together my thoughts on SPY, QQQ, TLT technicals, PCE data, Fed liquidity, China liquidity, and October seasonality in today’s video update, recorded 30 minutes into the market open.

Going forward, we will do these recordings regularly throughout the week, with a different theme for each update.

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