YOUR WEEKLY ROADMAP

Down the stretch we come!

Monday kicks off what is historically and statistically the best quarter of the year. Yet the headlines as we head into October read like a bear market in full swing.

• Steepening Yield Curve
• Rates Higher for Longer
• Government Shutdown (averted for now)
• Auto Workers Strike
• Student Debt Loans Return
• The Yankees Missing the Playoffs
• Rising Oil and Gas Prices
• Highest Mortgage Rates Since 2000

Not all of these headlines may have a deep impact, but it's what traders have been talking about and watching closely.

Yet despite all these headwinds and negative headlines looming over the economy, the market continues to follow the typical seasonal script - strong first half, weak August and September, and now, maybe just maybe, a strong fourth quarter.

Let’s Look at Some Fun Stats…

We have now officially suffered greater than -1% drops in the S&P 500 in August or September. Thanks to Carson Group’s Ryan Detrick for sharing this fun statistic copied below.

This phenomenon has happened 14 times since 1952 and only once did we have a negative fourth quarter result. The average gain has been 4.5% while the average quarterly gain has been an impressive 7%.

So what about losses in a combined August and September period when the S&P 500 is having a banner year of 10% gains or more? That's a great question.

Thanks to Wayne Whaley for sharing this fun data point. There have been 10 previous years where the S&P 500 was up over 10% through the first seven months of the year (Jan - July) and then suffered losses over the next two months combined. This year marks the 11th such occasion as the S&P was enjoying a 19.5% gain going into the seasonal weak period.

Every single time, the index has finished the fourth quarter with a gain. The average gain has been 9%. While we are aware that past performance does not guarantee future results, we do like the statistical averages that strongly favor the bulls.

Fed Speak. The economic data is relatively light this week and earnings season doesn’t officially kick off until October 13th. So the focus will be on the multitude of Fed speakers presenting throughout the week.

The highlight will be Monday when Chairman Powell speaks with Philadelphia Fed President Patrick Harker in a round table discussion in York, PA. We will listen intently to hear his thoughts on last week’s PCE number. A result that continued to show signs that their rate hikes were cooling inflation as well as any hints into if another rate hike before year-end is necessary.

Government Shutdown? Well, not for now. We learned this weekend that Speaker of the House, Kevin McCarthy, was able to craft a deal to delay any government shutdown for at least 45 days.

So essentially the can was kicked down the proverbial road and we may just revisit this headline come mid-November. Maybe then I can share my chart about how the market reacted to prior shutdowns. Spoiler alert - the market didn’t care.

Earnings. It’s the slowest non-holiday week of the year for earnings releases. French-fry maker Lamb Weston (LW), Levi’s (LEVI), Constellation Brands (STZ), Tilray (TLRY) and ConAgra (CAG) are the highlights.

Economic Calendar

Monday - ISM Manufacturing 10:00

Wednesday - ADP Employment 8:15

Thursday - Jobless Claims 8:30

Friday - U.S. Unemployment Rate, Hourly Wages 8:30

THE WEEK THAT WAS

Once again rising yields on both the two and ten-year were key catalysts in the markets overall direction. They continued to rise, but started to slow later in the week. As the rise in yields slowed, the markets were able to catch their breath and the yield sensitive Nasdaq 100 was able to manage a slight gain.

Besides the effect yields were having on the markets, there were three key areas that also continue to have an impact on the economy and the market. Traders were focused on these data points and price levels all week. Two of them, oil and the PCE number, gave us promising results by the week’s end. A third, mortgage rates, continue to give everyone agita.

Oil… traded as high as $95.03 on Thursday - its highest level since June 2022. That was until reversing aggressively intraday from that high water mark. It dropped by $4.10 over the last two days of the week.

Despite a weekly gain of .84, it's the reversal that traders are watching. If these overbought levels continue to reverse into year end, it would be one less sticking point to help the consumer fight inflation. If it were to go back to those highs at $95 and higher, then that translates to more pain at the pump and a change in consumer spending habits.

30 Year Mortgage rates continued their climb to record levels this week. They ticked to their highest levels since 2000. At 7.75% the impact is finally starting to be seen in the home building stocks and should continue to cool the housing market.

This is one chart that has yet to have a downturn in 2023. Given a hawkish Fed and relatively strong demand and little supply, we may see rates may remain high into year end.

The PCE chart continues to gradually tick lower and results came in just as analysts expected. Given this is the Fed’s preferred inflation gauge, this downtrend remains one of the most important charts to watch month-to-month.

Heat Map. The hardest hit sector last week was by far the utility sector. NextEra (NÉE) dropped -15.4% alone. Other big players in the sector like Southern Company (SO) and Exelon (EXC) each fell by over -6%.

The damage wasn’t just isolated to utilities. Some of the largest market cap weighted stocks also continued their recent slide. Berkshire Hathaway (BRK-B) lost over -2.7% and Apple (AAPL) dropped another -2.1% to finish September down -8.8%.

THIRD QUARTER LEADERS/LAGGARDS

STOCKS IN THE NEWS

Nike (NKE) shares jumped 6.7% on Friday on a strong EPS beat, even though they missed overall sales for the first time in two years. It was the message they delivered on the call that gave investors hope that the worst of their recent performance was behind them.

Despite a -2% drop in North American sales, China growth gained by 5% showing that the recovery there was going better than anticipated. The company also cited that they continue to see very strong demand for their products and despite economic headwinds, the consumer is proving to be resilient.

For the week shares gained 5.3% but remained one of the laggards in the Dow Jones Industrial Average. However for 2023, shares are still lower by -18.5%.

Amazon (AMZN). The Federal Trade Commission filed an antitrust lawsuit that, according to Bloomberg, accuses “the e-commerce giant of monopolizing online marketplace services by degrading quality for shoppers and overcharging sellers.”

Amazon claimed the suit was “wrong on the facts and the law” and will be fighting it vigorously. The suit itself came as no surprise and should take years to play out.

Shares fell -4.5% last Tuesday on the news. For the week shares dropped -1.6%, but remained higher by 51.3% YTD.

Target (TGT) shares have fallen roughly -60% from its November 2021 peak. Last week they decided to push back against one of the more widely believed reasons as to why it's been so weak - shrinkage.

Shrinkage refers to losses due to theft, vendor fraud and administrative error. It has been reported for as long as I can recall, but it has been cited as a major factor in many retailers' earnings calls as a reason for why they have failed to make their numbers.

In the case of Target, they have seen theft rise dramatically in many urban areas and announced this week they will be shutting nine locations due to crime and safety concerns. The closures include stores in New York City, Seattle, Portland and San Francisco.

While it makes big headlines, the closures account for less than ½ of 1% of all stores. Shares fell to a new 52-week low on the news and closed lower by -1.8% on the week to close at $110.57. It’s their lowest weekly close since July, 2020.

MARKET STATS

Stocks remained resilient all week. Each sell-off failed to provide a clear wash-out. We managed to sustain any significant damages and even ended the week with a small rally in last week’s most beaten down indexes.

The Nasdaq 100 and Russell 2000 managed to eke out gains, while the Dow and S&P 500 never found their way to positive territory.

As we hit the final quarter of 2023, both the Russell and Dow are up fractionally. The S&P 500 is having a slightly above average year while the high growth Nasdaq 100 is still sitting on an impressive 34.5% gain.

SECTOR WATCH

The Energy Sector (XLE) was the only sector to finish positive for September (up 3%) and is now up 12.9% over the last three months. The only other sector that finished higher for the quarter was Communications (XLC) with a 2% gain.

For the final week of the month, guess who led once again? Energy! The sector managed a 1.2% gain while 8 of the 11 key sectors finished lower. Safe havens in Utilities and Staples lagged yet again and remain the worst two sectors year-to-date, down -14.4% and 6% respectively.

IPO ACTIVITY

The third quarter saw the return of the high-profile IPO as 7 IPO’s raised over $100 million. The biggest of those deals by far was Arm Holdings (ARM) which raised $5 billion in its September 14th debut. Instacart (CART) and Klaviyo (KVYO) were the next largest companies to list and currently all three are trading above their original pricing.

It was the best month for total proceeds ($7.7billion) and second biggest month for new listings (26 total) since the fourth quarter of 2021. The pipeline remains active for new listings looking to test the public markets this quarter. Birkenstock looks to be the first high profile IPO of the 4th quarter. They are scheduled to kick off their roadshow this week with an IPO slated at the NYSE for the second week of October.

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