The big post-Fed rally could get tested in week ahead: 'A lot holds in the balance' of the next few days

Next week could be critical in determining whether stocks at all-time highs can sustain their momentum, at least for a little while longer. The Dow Jones Industrial Average topped 42,000 this week for the first time ever, while the S & P 500 breached the 5,700 milestone, after the Federal Reserve cut interest rates by a half-percentage point. But the next several trading sessions could determine whether the big post-Fed rally can continue, especially as investors brace for October — a historically weak period for equities that could be even more volatile than usual because of the approaching U.S. presidential election. "A lot holds in the balance of the next couple or few days," said Katie Stockton, founder at Fairlead Strategies. .SPX 5D mountain S & P 500 As of Friday afternoon, the 30-stock Dow, the S & P 500 and the Nasdaq Composite were each higher by more than 1% for the week. 'Pending confirmation' Now that the S & P 500 has made it past resistance at 5,670, Fairlead Strategies' Stockton said she is carefully monitoring that level over the next few days to see whether the breakout can continue — though some signs of exhaustion are giving her pause. The breakout is "'pending confirmation,'" Stockton said. "And the confirmation is important to us, because there's usually nothing worse than a non-confirmed or false breakout." For the S & P 500, a confirmation would be a "bullish short-term development" indicating the broader index could rise to 5,935 over the next three to eight weeks, she said. That's a roughly 4% rise from current levels. The technician, who anticipates a seasonal correction in October, expects a confirmation would also minimize any pullback next month, while a breakdown could signify a deeper one. "If we did see the breakout confirmed, that would probably minimize the corrective phase that we're expecting," Stockton said. "It wouldn't mean that we can't see a pullback, but the correction into sort of that 5000 range would be made less likely by a breakout, in my opinion." Overall, Stockton expects that the longer-term setup for the S & P 500 is "a bit overdone." She expects stocks will be in a trading range environment for the next nine months. The broader index was last hovering around the 5,700 threshold. Softer economic readings, vanquished inflation? At least in terms of the calendar, it appears that stocks will have plenty to test its advance in the coming week, as a raft of economic reports are anticipated to show softer readings than they had previously. Consumer confidence in September is expected to have weakened, to 102.9 from 103.3, according to FactSet. Durable orders, a measure of new orders for manufactured goods, are expected to have slid 2.9% in August, compared to a 9.8% increase a month earlier. "A bulk of the economic reports should show weakness over strength," said Sam Stovall, chief investment strategist at CFRA Research. "Thereby, I guess, maybe causing some to say, 'Gee, maybe that's the reason why we cut rates, is because things are looking a little weaker.'" Investors can continue to expect good news on the inflation front. The August personal consumption expenditure price index that's due out Friday is expected to show pricing pressures continuing to pull back from their highs. For investors, that could confirm that the Fed is right to shift its focus to the employment side of its mandate — with Fed Governor Christopher Waller on Friday saying the stronger trend lower was behind his support of a half percentage point rate cut in the last meeting. Notably, Fed Chair Jerome Powell in his press conference Wednesday that central bank economists anticipate PCE will be up 2.2%. It was at 2.5% the previous month. "I think the PCE will be icing on the cake," Stovall said. Week ahead calendar All times ET. Monday, Sept. 23 8:30 a.m. Chicago Fed National Activity Index (August) 9:45 a.m. PMI Composite preliminary (September) 9:45 a.m. Markit PMI Manufacturing preliminary (September) 9:45 a.m. Markit PMI Services preliminary (September) Tuesday, Sept. 24 9 a.m. FHFA Home Price Index (July) 9 a.m. S & P/Case-Shiller comp.20 HPI (July) 10 a.m. Consumer Confidence (September) 10 a.m. Richmond Fed Index (September) Earnings: AutoZone Wednesday, Sept. 25 10 a.m. New Home Sales (August) Earnings: Micron Technology Thursday, Sept. 26 8:30 a.m. Continuing Jobless Claims (9/14) 8:30 a.m. Durable Orders ex-Transportation (August) 8:30 a.m. GDP (Q2) 8:30 a.m. Initial Claims (9/21) 10 a.m. Pending Home Sales Index (August) 11 a.m. Kansas City Fed Manufacturing Index (September) Earnings: Costco Wholesale , CarMax Friday, Sept. 27 8:30 a.m. PCE Deflator (August) 8:30 a.m. Core PCE Deflator (August) 8:30 a.m. Personal Consumption Expenditure (August) 8:30 a.m. Personal Income (August) 8:30 a.m. Wholesale Inventories preliminary (August) 10 a.m. Michigan Sentiment final (September)