Last week saw the end of September and the end of the third quarter. The S&P 500 was largely flat for the month, slipping a slight 0.45% thanks in part to weakness during the final few days. It was nevertheless a solid quarter, with the S&P 500 up 2.0% in Q3.
Fundstrat Head of Research Tom Lee acknowledged that the month’s outcome was “somewhat disappointing” to him, but in his view, the headwinds and wall of worry that confronted investors in September have turned the S&P 500 into a “coiled spring,” setting up the potential for a macro surprise in October.
Some of the catalysts for such a surprise appear to be emerging, including a dovish walkback of expectations for a rate hike at the Oct. 28 meeting of the Federal Open Market Committee. Friday’s soft jobs report was followed by even stronger expectations that officials will instead opt to pause, arguably contributing to the S&P 500 rising 0.73% today.
The broader market’s resilience during September was almost entirely due to tech leadership. On an equal-weighted basis, tech was the only sector that advanced in September. Head of Technical Strategy Mark Newton noted that, “Looking at the Russell 3000, essentially all stocks, only 20% are above their 50-day moving averages. The majority of stocks are going down.”
“The fact that the stock indices look good […] truly is testament to the strength of technology,” he added. “We have to continue to respect the fact that tech has roared back with a vengeance.”
Although the deteriorating breadth is something Newton anticipates to “stabilize,” tech “should continue to be positive.” In fact, as a sector, it could improve. On an equal-weighted basis, “we’re literally on the verge of a pretty decent breakout – for the first time since May, actually.” In other words, though giants like Meta, Microsoft, and Nvidia have been doing well, some of the smaller names could be poised to join in as well.
Chart of the Week
Fed funds futures trading showed that on Sept. 16, the Federal Open Market Committee’s hawkish pivot and rate hike caused anticipated odds of a second straight hike emanating from the Oct. 28 meeting to spike. In the last few days, however, a dovish walkback has materialized, with a surge of investors revising their views in favor of a likely October pause in response to dovish “Fedspeak” and a cooler-than-expected PCE report. This change in attitudes can be seen in our Chart of the Week.
Both SPX and QQQ are holding their breakouts, but both are lower than a few hours ago as long-term rates turned back up, Crude is off earlier lows and the Dollar also turned higher. Yet, still a very constructive move for many within Technology and NVDA 1.30% in particular did make an official breakout today above 236 before pulling back ever so slightly in the last couple hours. I like using any mild consolidation from today’s breakout to buy dips and do not suspect a false/failed breakout but simply one which might require 2-3 days of “backing and filling” with max downside to near 230 before this starts to turn up more sharply in October.
Goldman Sachs has also not been spared to the recent decline in the Financials sector. This stock is currently 22% off all-time highs and did officially break its uptrend from last Spring about two weeks ago. Following this setback, it’s important to note that GS is now right near the 38.2% Fibonacci-based area of support (Approx- $875) with Ichimoku Cloud support directly under at $857. Both of these levels could prove important, but i suspect that most of this stock’s selling pressure has already played out and it’ s closer to a material low. The key for its rally technically speaking, is for the stock to regain the downtrend which has been intact since this Summer. That requires a move above $1010 which is now the first area of resistance to monitor on a bounce. this is followed by $1050. While i like buying dips in GS, i would hold off on getting too aggressive in GS and many Financials until this can stabilize a bit more.
This is what the Bears are missing – Equal-wgtd Tech ( RSPT 1.04% ) on the verge of a massive 4-month breakout (which is actually happening today) with roughly 2+ hours left til the closing bell, and markets are rebounding following Fed Vice Chair Philip Jefferson saying “it may take more time before policymakers can judge whether further interest rate increases are needed to slow inflation” While market breadth is literally the worst we’ve seen since Spring, Tech is showing much better strength right now, sentiment is poor, while most Defensive sectors simply aren’t acting well at all. So, sure Fins, Discretionary being down 6%+ in a month is not great.. but Tech can and does have the power to lead & SPX, QQQ can hold up without some of these other sectors participating. This stealth correction in the broader mkt is being camouflaged.. and w/ MSFT, AAPL, NVDA, META starting to kick into gear, that’s actually MORE important as a positive for Q4 even if the next 5-6 weeks ARE choppy. Technology is outperforming and this should continue, technically for Q4.
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