Market Brief - October 1, 2023
Welcome to The Predictive Investor Market Brief for October 1st, 2023!
Stocks closed lower for the fourth September in a row, as tight financial conditions in the form of surging interest rates and oil prices continue to provide headwinds for growth. Sentiment has turned negative, and a flurry of pessimistic stories have flooded the media (see Weekend Reads below).
That said, recent performance is in line with seasonal averages. While the average performance of the S&P 500 shows a decline from July through October, the fourth quarter is typically a strong quarter for stocks, especially after third quarter declines. Since 1990, the S&P 500 rebounded in the fourth quarter after a third quarter decline 82% of the time. We continue to expect the market to put in a low in October. Bond prices will likely be the catalyst as to timing (see below).
Weekend Reads
Why America Has a Long-Term Labor Crisis, in Six Charts: Work experts have warned for years that the combination of baby boomer retirements, low birthrates, shifting immigration policies and changing worker preferences is leaving U.S. employers with too few workers to fill job openings. While the labor market is softening, none of those factors are expected to change dramatically in the coming years. (WSJ)
S&P 500 Equal Weight Index Dips into Red Year-to-Date. Shows Entire Market Depends on 8 Giants, but They’re Swooning Too: The top-heaviness of the S&P 500 makes the overall stock market indices and funds that track them immensely vulnerable to a deflation in just a handful of the tech-bubble stocks. (Wolf Street)
5 economic shocks are about to hit the U.S. all at the same time: ‘There are storm clouds out there forming that we're all seeing and watching—fearfully’: The soft landing scenario, where inflation is tamed without the need for a job-killing recession, is the most likely outcome for the U.S. economy in the minds of the Fed’s staff of economists, but not Powell’s. (Fortune)
Even a Booming Economy Can’t Save Atlanta’s Office Market: Atlanta’s commercial-property turmoil shows that even Sunbelt cities with thriving economies can’t escape the office-sector meltdown. Strong job growth hasn’t made up for the city’s anemic return-to-office rate, a glut of new office supply in the years leading up to the pandemic and companies shedding space as leases expire. (WSJ)
Once Unthinkable Bond Yields Now the New Normal For Markets: From the US to Germany to Japan, yields that were almost unthinkable at the start of 2023 are now within reach. The selloff has been so extreme it’s forced bullish investors to capitulate and Wall Street banks to tear up their forecasts. (Bloomberg)
Market Technical Analysis
S&P 500 (SPY)
SPY is working its way toward the 200 day moving average (currently $418.93), as expected. The other area of support, more psychological than technical, is $413.50, which would represent a 10% decline from the July highs, meeting the technical definition of a correction. At this point we are waiting to see signs of price stability rather than a significant drop. Just 15% of S&P 500 stocks are above their 50 day moving average, a level not seen since October 2022.
Intermarket Relationships
The inverse relationship between stocks and bonds has been out of sync since July, when both have been trending lower. Rising yields create tighter financial conditions and are seen as a threat to growth. If yields continue to spike, we can expect to see more downside in equities. If not, stocks should put in bottom soon and head higher.
