GROWING CORRELATION

Currently, there is a strong correlation between digital assets and U.S. stocks, with a 40-day correlation coefficient of about 0.67. This correlation level, which was only exceeded back in the second quarter of 2022, indicates that the macroeconomic factors influencing the stock market are now also impacting the crypto market. Let’s remember that the recent record highs in U.S. stocks and the surge of many cryptocurrencies were predominantly driven by the Federal Reserve’s decision to embark on a cycle of monetary easing. As of this morning, the sentiment in the crypto market remains positive, with Bitcoin trading above the 63,000 mark, and traders are closely watching incoming U.S. economic data to gauge if the upward trend for cryptos will continue.

ECONOMIC CLARITY

This week, investors are closely monitoring Fed officials’ remarks and the release of the personal consumption expenditures price index as indicators of the U.S. economy’s health. Let’s remark that there is speculation surrounding whether recent data will support Fed Chair Jerome Powell’s assertion of economic strength, and the upcoming second quarter GDP reading will be a crucial test of this position. In addition as Powell has been cautious not to prematurely declare victory over inflation, considering ongoing pricing pressures, the forthcoming release of the PCE index, which is the Fed’s favored inflation measure, will provide further clarity on inflation trends. Moreover, the market is eager to gauge the Federal Open Market Committee’s response to the economic signals, highlighting the importance of analyzing both commentary from Fed officials and inflation data.

CONSIDER SELLING

Investors are currently being advised by Morgan Stanley strategists to consider selling their U.S. defensive stocks due to their inflated valuations compared to other sectors, a decision influenced by the lack of clarity on upcoming jobs data. Over recent months, there has been a shift towards investing in defensive stocks such as healthcare and utilities due to concerns of a potential recession in the U.S., however, although the Federal Reserve’s recent decision to cut interest rates has alleviated some of these fears, there is still uncertainty surrounding the future performance of these stocks. Consequently, experts at Morgan Stanley suggest selling defensive stocks to secure profits, as these stocks may perform slightly worse in the near future. Moreover, while some market strategists remain optimistic about the outlook for cyclical stocks, others like JPMorgan Chase & Co. express a bearish sentiment towards European cyclical stocks due to anticipated drops in bond yields, expected earnings downgrades, and unattractive valuations. Overall, the stock market is currently characterized by uncertainty and investors should weigh various factors to make informed decisions.

STELLAR GROWTH

Palantir Technologies, which is a company recognized for its data analytics software, has been making headlines as its stock, PLTR, has been experiencing significant growth this year, jumping by 116%. This surge has positioned Palantir at the 16th spot on the IBD 50 list of top-performing growth stocks. Furthermore, exciting developments continue for Palantir as it is set to join the prestigious S&P 500 index on today – a move that is expected to attract mutual funds and institutional investors. The company’s inclusion, accompanied by a rise in tech and AI stocks following the Federal Reserve’s interest rate cut, has ignited buzz around the potential opportunities within the AI sector. Moreover, it is worth highlighting that analysts are optimistic about the future outlook for tech stocks, projecting a continued uptrend fueled by growing AI spending, signaling a positive trend for the tech sector as it enters a phase of potentially significant growth.

KEY EVENTS IN THIS WEEK

Monday: S&P flash U.S. services PMI report for September, and speeches from Atlanta Fed President Raphael Bostic, Chicago Fed President Austan Goolsbee and Minneapolis Fed President Neel Kashkari.

Tuesday: S&P Case-Shiller home price index (20 cities) report for July, consumer confidence report for September, and speech from Federal Reserve Governor Michelle Bowman.

Wednesday: New home sales report for August, and speech from Federal Reserve Governor Adriana Kugler.

Thursday: Durable-goods orders and pending home sales reports for August, second revision of GDP for second quarter, initial jobless claims for week ending on September 21, and speeches from Federal Reserve Governor Adriana Kugler, Boston Fed President Susan Collins, Federal Reserve Governor Michelle Bowman, Federal Reserve Chair Jerome Powell, New York Fed President John Williams, Federal Reserve Vice Chair for Supervision Michael Barr, and Federal Reserve Governor Lisa Cook.

Friday: Personal consumer expenditure (PCE) index and advanced wholesale and retail inventories reports for August, final consumer sentiment report for September, and speech from Federal Reserve Governor Michelle Bowman.