Following a winning streak of five months, the S&P and the Nasdaq closed out August in negative territory. The performance of all major stock indices for the month was lackluster. The S&P 500 experienced its poorest performance since February, while the Dow had its worst month since May. The Nasdaq’s performance in August was its weakest since November of the previous year. In summary, during August, the Dow declined by 2.4%, the Nasdaq saw a 2.2% loss, and the S&P 500 slipped by 1.7%.
Thanks to economic data indicating a cooling U.S. economy, it has strengthened expectations that the Federal Reserve will temporarily halt its rate hikes in September. On August 29, the SPX broke out above its 50-day moving average, effectively ending the correction that had been ongoing since the end of July. Looking ahead, the market is still within a triangular pattern, and the upper channel is expected to challenge the recent uptrend momentum, provided that the previous high of 4607 remains unbroken.
Conversely, with the exception of Utilities and real estate, nearly 9 sectors currently exhibit the 50-day moving average above the 200-day moving average, resulting in golden crosses. This marks the highest number of golden crosses among sectors since the lows of last October, indicating the market’s potential for upward movement. Looking ahead, for the bull market to persist, the market must successfully breach the 4607 mark.
Has the correction officially come to an end with the SPX breaking above the 50-day MA? Probably not. As mentioned previously, the S&P 500 index is still confined within a triangular pattern. Moreover, historical data shows that September tends to be more volatile compared to the months in the 4th quarter.
However, the latest employment report showed the unemployment rate rose last month and wage growth cooled. If we witness more positive inflation reports in September and October, it’s plausible that the Fed will conclude its rate hikes. In such a scenario, the SPX could potentially break out of the top channel within this triangular pattern, propelling the bull market into its next phase. But if not, September might turn into one of those months that makes us all want to pull a disappearing act. Let’s hope for the first scenario!
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Sen Zhang
Managing Partner
Corrigit Capital Group