S&P 500; US Indexes Fundamental Forecast – September 27, 2016

Uncertainty ahead of the start of OPEC’s three-day meeting and the first U.S. presidential debate encouraged investors to dump risky assets on Monday, leading to steep declines in all three major indices.

In the cash market, the Dow Jones Industrial Average lost 160 points. The benchmark S&P 500 was down about 0.84 percent and the Tech-based NASDAQ dropped 0.9 percent. In the futures market, the E-mini S&P 500 Index closed at 2139.75, down 18.25 or -0.85%.

Although investors have essentially priced in a victory by Democratic candidate Clinton, they were taking no chances on Monday by paring positions after last week’s rally was fueled by the Fed’s decision to leave interest rates unchanged.

In economic news, new home sales totaled 609,000. This beat the 598,000 estimate. Dallas Fed President Robert Kaplan said he would’ve been ok with raising rates in September. Fed Governor Daniel Tarullo said in a speech the Fed will seek more capital from the largest U.S. banks and give relief to smaller banks. Minneapolis Fed President Neel Kashkari also spoke, but did not address monetary policy.

FORECAST                                                                                                        

Since investors feel that Clinton is going to win the election, the markets are likely to trade higher if she wins the debate. A win by Republican candidate Trump will likely trigger a sharp break.

If Clinton is the clear cut winner of the debate then traders are likely to go back to trading monetary policy on Tuesday. This would give the market an upside bias and trigger a resumption of the rally we saw last week.

Investors will be trying to get the major indices in sync because right now the NASDAQ is the leader, the S&P 500 is treading water and the Dow is weak.

Traders will also be reacting to news from the OPEC meeting especially S&P and Dow traders since energy is a major component of these indexes.

Bullish news from the OPEC meeting will be supportive for the S&P and Dow. This may actually allow these indexes to catch up with the tech-based NASDAQ Index.

Bearish news from OPEC will likely put a lid on any rally and could trigger another round of selling pressure.

In economic news, U.S. traders will get the opportunity to react to the latest S&P/CS Composite 20 Home Price Index. It is expected to show a gain of 5%, down slightly from 5.1%.

Flash Services PMI is expected to come out at 51.1, up slightly from 51.0. Conference Board Consumer Confidence is expected to drop to 98.6 from 101.1.

Traders will also get the chance to react to the latest comments from FOMC Member Stanley Fischer. He is an ally of Fed Chair Janet Yellen so he may err on the side of caution. However, he said just recently that he thinks a rate hike by the end of the year is possible.