Seasonality: Chop and Slop Down Continues
Ending the week on a major down note, finishing the week lower due to Friday’s broad-based selloff, with the large-cap benchmarks dropping back below their 50-day moving averages. The cash S&P500 finished the week down only “net” -.2% lower. It’s the 5th weekly loss since the end of July and has the index down -1.3% in September. A reminder that this is normal summer seasonal behavior. Overall, the 3rd quarter returns are now flat with Energy +12.6%, Communication Services +6.3%, Financials +2.9% the leaders. Technology (-3.2%), Real Estate (-3.0%), and Staples (-2.9%) are the lagging groups. The S&P 500 ended Friday at 4,450, down from last Friday’s closing level of 4,457.
This week is filled with multiple central bank decisions, including the Federal Reserve and Bank of England. The markets expect the Fed to be paused, having concluded the hiking cycle at the July meeting. The Fed Minutes, while seemingly focused on balanced risks, noted that 3 of 4 financial stability risks were giving “notable” reading which is worse than “moderate” reading given at the beginning of the year. The Fed remains data dependent, a message likely that continues to be reiterated. The short-term trading markets will focus on the updated DOT plot which is statistically meaningless at predicting both interest rates and future stock returns. Bloomberg reports that options markets are betting on faster than expected rate cuts in 2024 due to slowing inflation and growth. The European Central Bank (ECB) raised its benchmark interest rate by 0.25% to a new record high of 4%, but the ECB has likely completed its rate hike cycle.
Auto workers strike may dominate headlines this week with about 10% of the 150k person union on strike. President Biden’s Admin may get involved (should we be surprised?). Another US federal government shutdown looms after Sep 30. A bi-partisan deal in the House has yet to materialize.
The decliners last week in the technology sector included shares of Oracle (ORCL), which fell -9.8% from a week earlier. The company’s fiscal Q1 revenue slightly missed analysts’ expectations on weaker Cerner bookings.
In the industrial sector, shares of RTX (RTX) shed -9.2%. The company faces “continued risks” to its free cash flow after announcing a $3 billion charge from the recall of hundreds of Pratt & Whitney jet engines over the next several years.
On the upside, utilities (not a great leading group) sector’s gainers included shares of Southern Co. (SO), which rose 4.7% on the week amid an investment rating upgrade to neutral from underperform from BofA Securities. The consumer discretionary sector was boosted by shares of Tesla (TSLA), which jumped 10% as analysts at Morgan Stanley said the electric vehicle manufacturer’s supercomputing architecture, Dojo, could add up to $500 billion to its enterprise value by expanding its total addressable market. The analysts raised their price target on the stock to $400 each from $250.
Chart of the week? S&P500 returns after the Fed’s last rate hike. 1999-2000 Internet Bubble timing was the outlier.
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