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Cracking Under Pressure

Cracking Under Pressure

September 18, 2023

Hello and welcome to this weeks’ market update from The Gate, brought to you by The Cornerstone Financial Group.

This week may be a pivotal one for the markets. When the FED meets this week on Wednesday, their narrative will be as telling or more than their actions as to how the markets will react. A hawkish tone could be the final straw for the already strained markets and businesses. As the volatility in the markets continues due largely to higher interest rates, small companies are taking the brunt of the hit due to their heavy reliance on financing. Now that cheap financing is nowhere to be found, small businesses are having trouble achieving their growth goals and plans.

Two other factors that play into both the FED’s decision and the current market are CPI and PPI numbers, both of which came in hotter last month. This, in part, is due to energy prices (oil) rising unapologetically (with no end in sight). Rising oil prices don’t just affect the obvious, gas prices, but also EVERY item that needs to be delivered, shipped, or manufactured using gas.

According to a new survey conducted by PayrollOrg, 78 percent of people surveyed are living paycheck to paycheck, meaning that if a paycheck was delayed, they would have a difficult time paying financial obligations. Consumers are becoming more pessimistic about the current financial situation that they are in. [1] On top of all this, student loan repayments begin next month. All these factors are causing increasing strain on the average consumer. The question then becomes; with all this pressure, when will the consumer and the economy snap?

On a Technical Side of things, small companies have taken the largest hit in the recent past. They have dropped beneath their 200-day moving average (200MA) for some time now with little sign of rebounding. The hope, however, lies in the STO which is showing small companies to be oversold, along with a lack of momentum to the downside. It would take some good news to send this back above the 200MA, if not, we could head to freefall beneath the 200MA. Keep an eye out. Small companies often act as a good barometer for the economy overall.

Consumer/small company strain, rising oil prices, and hotter CPI numbers contribute to what could be some challenging times in the near future. As stated last week, the markets are still deciding whether they will continue 2023’s rally, but their decision may be made after Powel gives his address on Wednesday.

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[1]Survey Reveals Six Percent Increase in Americans Living Paycheck to Paycheck in Just One Year