S&P 500 reaches 2600

The S&P 500 reached its medium-term target of 2600. This is stage 3 of a bull market; a short correction or consolidation followed by further gains is likely.

S&P 500

A sharp correction during stage 3 often warns of an impending top but is unlikely at this stage.

Bellwether transport stock Fedex found short-term support after a 3-week correction. Bearish divergence on Twiggs Money Flow so far suggests secondary selling pressure and not an alteration in the primary trend. Recovery above 220 would respect the rising trendline, indicating a healthy up-trend — a bullish sign for the broader economy.

Fedex

Elliot Clarke at Westpac raises concerns over low investment growth:

…the FOMC clearly sought to cement market expectations of a rate hike in December in their October/November meeting minutes. The economy was seen as continuing to enjoy above-trend growth thanks to robust gains for household consumption. Built on income gains as well as strong confidence, this trend is expected to persist. Inevitably though, an economy cannot be built on consumption alone. Investment is necessary, and this is an area of the growth outlook where we harbor doubts. Should, as we expect, investment growth remain tepid, then productivity and income growth will be held back. This is a key reason why we believe that this rate hike cycle is likely to top out around 1.875%, after the December decision and two further hikes in 2018.

I think he is right that the Fed will remain cautious about raising interest rates until investment growth strengthens. Low inflation is partly caused by low investment, but this is likely to fade as new job creation strengthens.

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