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USNAS100 1W How to Invest in August

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Despite the heat and humidity—and the resumption of Federal Reserve rate hikes—the bull market kept running in July. At this point in the cycle, it’s entirely possible that the stock market could notch a new all-time high in the month of August.

The S&P 500 put in a bravura performance in the first seven months of 2023, rising more than 19%. The Dow Jones Industrial Average added more than 7%, while the tech-heavy Nasdaq Composite rose an astonishing 44% through the end of July.

A better-than-expected mid-year earnings season has buoyed markets, but the real enthusiasm appears to be driven by the dawning realization that the Fed has effectively suppressed inflation without causing a recession.

It remains to be seen whether this outlook survives the heat of summer—and potentially one more rate hike—but with labor markets strong and GDP growing robustly, recession fears have evaporated. That’s great news for stock investors in August.

The Fed has made tremendous progress on the inflation front so far this year, and many investors are optimistic it has finally reached its terminal interest rate of the current cycle.

Stocks rallied in July despite the FOMC delivering yet another quarter-percentage-point rate hike. This put the federal fund's target rate range at 5.25% to 5.5%, its highest level in 22 years. Currently, professional investors are betting that there is only a 32% chance that the Fed will raise interest rates again by November, according to CME Group.

U.S. Recession Watch

The next couple of months will determine whether or not the Fed can engineer a so-called “soft landing” for the U.S. economy. That’s the term market participants use to describe the possibility the U.S. economy can avoid a recession despite all the rate hikes.

How to Invest in August

“August is a historically volatile month for the stock market, as many market participants are on vacation. August’s volatility could be extra elevated if we see hotter-than-expected inflation readings in August, given the rise in gasoline and commodity prices over the past few weeks,” Landsberg says.

Economists from Bank of America, Vanguard, and JPMorgan Chase still see a high likelihood of a U.S. recession later in 2024. The New York Fed Recession indicator suggests there is a 67.3% probability of a recession sometime in the next 12 months.


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