Critical Market Watch Next Week: July 29th, 2019


The week long-awaited moment of excitement is finally going to unveil next week. So far for this week, corporate earnings reports provided nothing surprising. The latest update on corporate earnings reported for the second quarter 2019, out of the 218 companies listed in the S&P 500, 75.2% of them have topped estimate. It has further proven that the US economy is as strong as ever.  The fear of a slowdown does not hold waters at all. And yet economist and market players are all expecting an interest rate cut next week after Fed meeting on 31st July 2019 (1st August for Asian).

Since all US markets have also created new historical heights, it added more fuel to the fire of this peculiar market behavior. Therefore by next week, the stock market will be more exciting to watch in human history. There could be possibly one of the three decisions the Fed is going to make after their meeting. First, it will probably yield to public and political pressure to cut-rate down a quarter points starting from August 2019. Second, the Fed will stick to its conventional stance to refrain a rate cut due to insufficient data supported. And thirdly, it could decide to delay the rate cut until September 2019 depending on further conditions.

Such an all time height market is normally more susceptible for correction.

Three Possible Fed Decisions

There will be different consequences according to a different decision announced then.  If the Fed decided a rate cut, the market will look at it as a historical turning point for quantitative easing. The equity market will run up cheerfully, US currency will drop gap down deadly. Gold will fly for further historical height. If this case happens, congratulation to those who have invested US equity funds or stocks and Gold related funds. But to me, this scenario is possibly having slimmest chances to materialize if we trace how the Fed committee decided in the past. But “miracle” sometimes does happen, who knows? 

For the second decision case, the Fed committee will maintain their gut against all political odds and public pressures; they boldly announce that they have decided no rate cut for the time being. This decision will surely anger market speculators. They will create massive market selloff due to disappointment. US currency will continue to soar further heights and gold will drop dead.

If this happens, sober investors should remain calm and enter the market to do bottom fishing. This is because this massive selling by speculators created a good opportunity for us to enter the market cheaply. As long as we know the US market remains strong and healthy, it still deserves our fresh investment commitment.

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Whatever decision the Fed is going to make next week will cause market to response accordingly.

I do not worry about market crashes or correction at this juncture. If it happens, I will rejoice welcoming it because my conservative portfolio expecting one such scenario coming in. What I do concern is that market selling does not come.

Mild Market Responses

In the third decision case, the Fed committee possibly does not want to disappoint the public, and yet at the same time, they want to maintain their integrity. They could announce the rate cut delay until September with the certain condition develops looking forward.  This decision could make the market spinning with doubt in the cloud. Because this announcement will look similarly like there is no rate cut. But the market fall could have its limit, or not that bad as if there is no rate cut at all. This limited market fall could be also a good opportunity for us to align our investment portfolio in order position for a better profit when the market moves forward.

Anyhow, the most disappointing scenario is that whatever decision the Fed announces next week, the market remains muted as if nothing happens. This will be greatly disappointing because it does not provide any good entry point for us to either adjust our portfolio or top-up further allocation to our investment portfolio. This is possibly not likely to happen.

If you have noticed another market-sensitive event will be going on at about the same time, you will be highly alert of any eventuality. High-level trade negotiation teams between China and the US will be meeting to talk starting on July 30th next week as well. If any undesirable outcome resulted, the market will find a good excuse to react.

But if you have invested partially or conservatively, you have nothing to fear, whatever market direct it moves or doesn’t move, you are still in a better position to benefit from a healthy US market.

Happy investing!

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Disclaimer

The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.

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