Higher Rates Just Gave Stocks Their Worst Month of The Year


Stocks pulled back hard in September as interest rates and oil prices soared.

The S&P 500 dropped 4.9 percent last month, its biggest decline since December 2022. About 85 percent of the index’s members lost value. Similar to August, energy was the only positive sector.

Yields on the 10-year Treasury note climbed to their highest levels since October 2007 after the Federal Reserve indicated it’s likely to cut interest rates less next year. Other central banker including Neel Kashkari and Austan Goolsbee reiterated the hawkish message in speeches.

In addition to the Fed shock, OPEC+ extended oil production cuts through the end of the year. Russia also halted diesel exports. Those events drove crude oil to a 52-week high and diesel to a record high.

Most of the big decliners in September were associated with the double-trend of higher rates and higher oil. Airlines, which carry heavy debt loads and are sensitive to fuel prices, lost more than 10 percent. Real estate investment trusts and homebuilders fell sharply. Solar-energy stocks, which are also sensitive to interest rates for project financing, had their worst month of the year. Precious metals declined as the U.S. dollar rallied.

Amazon.com, Apple

Amazon.com (AMZN) had its biggest monthly drop since February after the Federal Trade Commission opened an anti-trust case against the e-commerce giant. Apple (AAPL) fell after China banned iPhones for some government workers, but CEO Tim Cook later said the company is investing in artificial intelligence (AI). That could be important over time because AAPL has yet to make any big AI announcements. Meta Platforms (META) was the only megacap growth stock to rise last month.

One noteworthy mover last week was Advanced Micro Devices (AMD), which rose 6.9 percent after bouncing at its 200-day moving average. It also got a boost after Microsoft’s (MSFT) chief technology officer said AMD was making gains in AI.

S&P 500 with select patterns and indicators.

Charting the Market

The S&P 500 dropped all four weeks in August, its longest weekly losing streak since April and May 2022.

Some patterns may suggest the index is trying to find a bottom.

First, last Wednesday, September 27, prices dropped to their lowest level since early June before reversing higher. The result was a “hammer” candlestick pattern, which may indicate a bearish move is ending. The index ended the next two sessions above Wednesday’s close, potentially confirming the hammer.

The S&P 500 is also stabilizing around a price zone from June 5-8, shortly before it rallied to a new 52-week high.

Third, oscillators like Wilder’s Relative Strength Index (RSI) and stochastics are near oversold levels. Some chart watchers may also look for the index to bounce from the bottom of its falling price channel.

Stocks have also ended a negative quarter after rallying in the spring and early summer. Attention could now focus on catalysts like earnings season in a few weeks.

Next, sentiment may be overly negative. Less than 28 percent of respondents termed themselves bullish in the latest survey by the American Association of Individual Investors. Almost 41 percent were “bearish.” Both of those matched readings in May as Wall Street worried about the debt ceiling.

Finally, investors are likely to keep watching Treasury yields and oil prices. Further upside in either could hurt stock sentiment. However pullbacks could potentially boost risk appetite.

Big Movers in September

Top Gainers in the S&P 500 Last Month
Centene (CNC)+12%The health insurer rallied after reaffirming guidance and bouncing at a two-year low.
CF Industries (CF)+11%The fertilizer stock gained after reporting strong earnings in August.
Westrock (WRK)+9.4%The packaging firm agreed to merge with Irish company Smurfit Kappa.
Valero Energy (VLO)+9.1%The oil refiner benefited from higher diesel prices as Russia cut exports.
CVS Health (CVS)+7.1%The health-care company rebounded from a 52-week low amid upgrades from Wolfe Research and Evercore ISI.
Source: TradeStation Data
Top Decliners in the S&P 500 Last Month
Dollar General (DG)-24%The discount retailer declined further as analysts highlighted weaker fundamentals after earnings missed estimates.
FMC Corp. (FMC)-22%The fertilizer stock fell on worries about increased competition.
Organon (OGN)-21%The drug stock fell to a new all-time low despite reporting strong results in early August.
SolarEdge (SEDG)-20%The solar-energy stock continued to fall after weak quarterly results on August 1.
Align Technology (ALGN)-18%The orthodontic stock kept pulling back from a big rally in July.
Source: TradeStation Data

Sector Watch

Health Care-3.4%
S&P 500-4.9%
Consumer Staples-5.4%
Consumer Discretionary-5.7%
Real Estate-8%
Source: TradeStation Data

Key Economic Events in September

Below are some key economic events from last month.

  • Inflation matches estimates: The consumer price index (CPI) rose 0.6 percent in August, largely driven by energy costs. Core inflation matched estimates with a 0.2 percent increase. Shelter costs rose at the slowest pace in two years. (9/13)
  • Retail sales surprise to the upside: Retail sales rose 0.6 percent in August, triple the amount forecast by economists. Aside from a surge on petrol spending, clothing, electronics and appliances saw noteworthy gains. (9/14)
  • Housing data misses estimates: NAHB’s homebuilder sentiment index dropped to 45 in September, its first negative reading in seven months. (9/18) Housing starts also fell to an annual pace of 1.283 million, well below the 1.44 million estimate. (9/19) Higher mortgage rates caused the weakness.
  • Fed reduces potential easing in 2024: The Federal Reserve now expects to cut interest rates just twice next year, two fewer than predicted in June. The central bank also said it’s likely to hike one more time this year. (9/20)

What Experts Are Saying

Below are some noteworthy commentaries.

  • Morgan Stanley economist Ellen Zentner said higher gasoline prices may be a “blessing in disguise” because it may depress consumer spending without significantly increasing inflation. That resulting economic weakness could potentially reduce the need for further rate hikes. (9/15)
  • Credit-card losses have risen above pre-pandemic levels, according to Seeking Alpha and S&P Global Market Intelligence. The average net loss rate climbed by 14 basis points in August and is 75 basis points higher than a year ago. Citigroup posted the biggest increase. (9/22)
  • Chicago Fed President Austan Goolsbee said high inflation is a greater risk to the economy than over-tightening. Neel Kashkari of Minneapolis added that the upper band may need to increase past 5.75 percent. Both are voting members of the central bank’s policy-making committee. (9/25)
  • The Fed may hike interest rates to 7 percent to counter inflation, JPMorgan Chase CEO Jamie Dimon told The Times of India. He added the final tightening will cause more pain than the last 2 points of hikes. (9/26)
  • Katie Stockton of Fairleads Strategies told CNBC that the stock market could be near a bottom. She said the current pullback is normal for an uptrend but the S&P 500 needs to hold 4200. She added that Treasury yields may be near a peak for the next “couple of months.” (9/29)

Popular Futures Contracts in September

S&P 500 E-Mini (@ES)ESZ23 (Dec)12/15/23ESH24-5.2%
Nasdaq-100 E-Mini (@NQ)NQZ23 (Dec)12/15/23NQH24-5.4%
Dow Jones E-Mini (@YM)YMZ23 (Dec)12/15/23YMH24-3.9%
Russell 2000 E-Mini (@RTY)RTYZ23 (Dec)12/15/23RTYH24-6.3%
Source: TradeStation Data

Newsworthy Events This Month

DateEventWhat to Watch For
Fri 10/6Non-farm payrollsJob-market conditions: unemployment, wages, hours worked
Wed 10/11Minutes from last Fed meetingComments on inflation and labor market, restrictiveness of current policy.
Thu 10/12Consumer price indexWill inflation continue to ease?
Fri 10/13Earnings season beginsJPMorgan, Citi issue quarterly results
Thu 10/26Gross domestic productFirst reading of economic growth in July, August and September

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