So far, so September

The first week of September lived up—or down, depending on your perspective—to expectations, as stocks started off the historically volatile month with a sharp retreat.

After ending August just shy of its record high, the S&P 500 (SPX) pulled back after the Labor Day holiday as weaker-than-expected economic data appeared to ramp up concerns that the economy was cooling too fast—and that the Fed may be behind the curve in terms of its ability to blunt the contraction with rate cuts.

A week that started with selling after manufacturing and construction numbers missed estimates ended with bears putting on extra pressure after Friday’s softer-than-expected monthly jobs report:

The headline: Biggest weekly loss for S&P 500 since March 2023.

The fine print: Last week confirmed the market’s shift from concerns about inflation to concerns about recession. Morgan Stanley & Co. analysts recently noted that while a 0.25% rate cut on September 18 was their baseline case, they didn’t rule out a 0.5% cut if economic data came in weaker than expected.¹ It remains to be seen if Friday’s soft (but not exceptionally weak) jobs report will impact the Fed’s decision-making process. The market-based odds of a 0.5% cut decreased from 43% before the report to 29% after it.²

The number: 89,000, the downward revision (from 114,000) to the number of jobs created in July—the lowest total since 2020.

The scorecard: The Dow Jones Industrial Average (DJIA) held up best to the selling pressure:

Sector returns: The strongest S&P 500 sectors last week were consumer staples (+1.3%), real estate (+0.9%), and utilities (+0.2%). The weakest sectors were information technology (-6%), energy (-5.6%), and communication services (-4.1%).

Stock movers: Sable Offshore (SOC) +39% to $23.43 on Tuesday, Byrna Technologies (BYRN) +38% to $14.85 and Frontier Communications (FYBR) +38% to $38.68, both on Wednesday. On the downside, Dyne Therapeutics (DYN) -31% to $31.94 on Tuesday, Rent The Runway (RENT) -28% to $10.90 on Friday.

Futures: October WTI crude oil (CLV4) extended its slide, falling nearly $6 to end the week at a 15-month low of $67.67. December gold (GCZ4) ended an up-and-down week slightly lower at $2,501.50. Week’s biggest gains: September VIX (VXU4) +29.3%, October natural gas (NGV4) +6.9%. Week’s biggest declines: September ether (ETHU4) -13.1%, October WTI crude oil (CLV4) -10.4%.

Inflation data returns to center stage this week:

●Monday: Wholesale Inventories, Consumer Credit
●Tuesday: NFIB Small Business Optimism Index
●Wednesday: Consumer Price Index (CPI)
●Thursday: Producer Price Index (PPI)
●Friday: Import Price Index, Consumer Sentiment (prelim)

This week’s earnings include:

●Monday: Calavo Growers (CVGW), Limoneira (LMNR), Oracle (ORCL), Rubrik (RBRK)
●Tuesday: Academy Sports & Outdoors (ASO), Dave & Buster's (PLAY)
●Wednesday: Cracker Barrel (CBRL), Designer Brands (DBI)
●Thursday: Kroger (KR), Adobe (ADBE)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Contrarians who think last week’s relatively sharp loss increased the odds of a rebound this week may or may not be correct, but they don’t have history on their side. Since 1957, when the SPX declined in the short week after Labor Day, its average return the next week was -0.6%. By contrast, when it rallied in the four days after Labor Day, the next week’s average return was +0.2%.³

Also, the SPX has posted 56 other 4%-5% weekly declines since 1957. Slightly more often than not (29 times), the index closed higher the following week. But when the 4%-5% down week also marked the lowest weekly close in at least two weeks and followed the highest weekly close in at least two weeks (as was the case last week), the SPX closed lower the next week eight out of 15 times.

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¹ MorganStanley.com. Is the Fed Behind the Curve? 8/29/24.
² CMEGroup.com. FedWatch Tool. 9/6/24.
³ A figures reflect S&P 500 (SPX) weekly closing prices, 1957-2024. Supporting document available upon request.