Thus far September has been a quiet month. Stocks slowly drifted lower last week. The S&P 500 and the Dow Jones Industrial Average both snapped a five-week winning streak with minor declines. Early last week the focus was on Apple (AAPL) and its iPhone 6 launch on Tuesday. On Wednesday President Obama announced a new strategy to target ISIS in Syria and Iraq. The last couple of days the market's interest has focused on this week's FOMC meeting and if the Fed will change their statement and remove the "consider period" language.

It seemed the only thing really moving last week was currencies and commodities. The British pound fell to new relative lows losing ground nine out of the last ten weeks as markets worry over Scottish independence. The euro dropped to new 2014 lows. The Japanese yen plunged to new multi-year lows. Meanwhile all this currency weakness helped prop up the dollar to new one-year highs. Strength in the dollar is bearish for commodities. Copper dropped -2.2%. Silver fell -2.9%. Gold declined -3.0% for the week. Oil lost another -1.3% and this is weighing on the energy stocks. New sanctions by the U.S. and Europe against Russia's major oil companies are also pressing oil stocks lower since a lot of U.S. and European energy companies have deals with their Russian peers. These deals are now in jeopardy.

Economic Data

We did see improvement in consumer sentiment. Economists were expecting the latest University of Michigan consumer sentiment survey to rise from 82.5 to 83.3. The report came in at 84.6, the highest reading since July 2013. Most of the gain came from an improving expectations component.

Normally analysts like to equate stronger consumer sentiment with stronger consumer spending. It doesn't always pan out that way but the latest retail sales report did show improvement. The month of August saw retail sales rise +0.6%. That's a full +5% from a year ago levels. Motor vehicles were a big reason for the gains. Excluding vehicle sales we were still up +0.3%.

Another bonus for the consumer is falling gasoline prices. The average price of gasoline in the U.S. has fallen to $3.42 a gallon. That is a seven-month low and a significant drop from the $3.70 average we saw in June. Years ago Deutsche Bank estimated that every one cent rise in gasoline consumes about $1 billion worth of consumer spending in the U.S. Thus a 28-cent drop in gas is gives the average consumer a bit more breathing room and some extra spending money in their pocket they will hopefully spend somewhere else. Some are speculating that we could see gas fall to $3.15 a gallon by Halloween and potentially $3.00.

Overseas Economic Data

Economic data overseas was generally positive. The Eurozone said their industrial production rose +1.0% for the month, up from -0.3% the prior month. Spain reported a +0.8% gain in their industrial production. This was worse than expected but better than the prior month. Meanwhile Italy said their industrial production dropped -1.0%, significantly worse than expected and down from +0.8% the prior month. Germany's trade surplus surged from 16.4 billion euros to 22.2 billion, which was way above expectations. Germany's imports dropped -1.8% but their exports rose +4.7% versus estimates for a gain of +0.6%.

Looking toward Asia we see Japan revising their latest GDP estimate to -1.8%. Japan also reported their industrial production rose +0.4% for the month, beating expectations. China saw its trade surplus grow from $47.3 billion to $49.83 billion. This was significantly above expectations. Analysts were expecting Chinese exports to rise +9% but they came in at +9.4%. They were also expecting a +3% gain in imports but imports actually fell -2.4%.

In more disturbing news a recent poll shows that 53% of Chinese expect their country to be at war with Japan by 2020. That's less than six years from now! Almost a third of Japanese (about 29%) expect to go to war with China. The relationship between both countries has been steadily deteriorating over the last few years. Some have pointed out the parallels between Europe prior to World War I and the Asia region today.

Major Indices:

The S&P 500 posted its first weekly loss in six weeks with a -1.1% decline. The index has spent the last few days beneath its simple 10-dma and many of the short-term momentum oscillators have turned bearish. If this pullback continues I would look for support near 1950, which is close to the bottom of its bullish channel on the weekly chart. Year to date the S&P 500 is up +7.4%.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite lost -0.3% for the week. This index has been consolidating sideways for about three weeks in a row. The range seems to be 4,545-4,610. If the NASDAQ sees a deeper pullback I would expect some support in the 4,485-4,500 area. Year to date the NASDAQ is up +9.4%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index slipped -0.8%. This index is currently in no-man's land between significant support near 1,080 and significant resistance near 1,210. Many of the technical indicators are mixed but short-term oscillators have turned bearish. Year to date the $RUT is down -0.1%.

chart of the Russell 2000 index

Economic Data & Event Calendar

It's a relatively quiet week for economic data if you're looking at the number of reports. The next three days will be entirely focused on the Federal Reserve's two-day meeting and its conclusion on Wednesday. No one expects the Fed to adjust rates. The focus will be on their policy statement and if they change their economic forecasts.

Economic and Event Calendar

- Monday, September 15 -
New York Empire State manufacturing survey
U.S. Industrial Production

- Tuesday, September 16 -
Producer Price Index (PPI)
Germany's ZEW index

- Wednesday, September 17 -
Consumer Price Index (CPI)
FOMC meeting and updated economic forecast
Fed Chairman Yellen press conference
NAHB housing market index

- Thursday, September 18 -
Weekly Initial Jobless Claims
U.S. housing starts and building permits
Philadelphia Fed survey

- Friday, September 19 -
(nothing significant)

Additional Events to be aware of:

Looking Ahead:

It has been relatively quiet on the geopolitical front. Last week President Obama announced a new offensive against ISIS and the U.S. and Europe launch yet another round of sanctions against Russia. This new attack against ISIS will not include "boots on the ground" but will mainly be airstrikes and a supporting role for countries that border Syria and Iraq. At least that's the official statement. I mentioned a week or two ago of eyewitness accounts of U.S. special forces operating in Iraq with their insignia removed so they can't be identified. Meanwhile Russia is preparing their own economic riposte to the new sanctions. As long as Ukraine and ISIS just simmer in the background the U.S. markets will ignore them. We only have to worry if another flare up occurs.

As I mentioned earlier the real focus will be on the FOMC meeting. Will Fed Chairman Janet Yellen remove the "considerable period" language from the Fed statement or not? If they do remove it then it could be interpreted as bearish for stocks since that might suggest the Fed will raise rates sooner than expected.

A Merrill Lynch analyst commented on the Fed meeting next week saying, "While we anticipate Yellen will continue to support a patient and gradual normalization process, the risk is that the markets may sell off on the perception of a less dovish Fed. We also expect the statement to note that these changes do not reflect a shift in policy preferences, and for Yellen to reiterate that point at the press conference. Still, the risk is that markets see these revisions as a hawkish move in the timing of liftoff. While we expect Yellen's overall tone to remain dovish, market perception will be key. The combination of changes to the forward guidance language and any comments seen as potentially hawkish, could lead to a selloff, particularly at the short end of the yield curve." (emphasis mine).

Another wildcard this week could be the Scottish vote for independence on Thursday. This event has been building up for years and it's finally come down to a vote. The "no" crowd has been avoiding the issue assuming it would never pass. Everyone has been shocked that the "yes" crowd has gained so much strength. Currently polls put the vote at 50/50. Scotland has been part of the U.K. for more than 300 years. If they do vote for independence it is going to cause serious upheaval in Europe. If successful it will raise a quagmire of questions for the United Kingdom. It will also strengthen the growing secessionists movements spreading through parts of Europe. Of course all of this uncertainly in Europe probably means more money finds its way to American markets.

Speaking of money in American markets, a lot of money managers are having a rough time this year. More than 80% of fund managers are below their benchmarks in 2014. Many of last year's high-profile winners are not performing well this year. That is going to put a lot of pressure on them to catch up. A lot of funds use October 31st as their yearend. The next six weeks will be critical for them.

Stocks could use a pullback to help set up for a strong fourth quarter rally. Investors should practice patience. The next couple of weeks could provide a great entry point for new positions.