Winds of Change
There was an evident push and pull occurring in the market this week as a confluence of macro and technical factors impacted returns. The S&P 500 concluded the week down -0.6%. Since the Labor Day holiday, the S&P 500 has closed lower on seven of the last nine trading sessions. While that sounds ominous, the index has only retreated by -2.2% over these days as selling pressure has been modest.
As we closed out the week, the S&P 500 is sitting right on top of its 50-day moving average, a key technical level. What’s worth noting is that for the last five months the S&P 500 has hit a low at the time of the monthly options expiration, which happened to occur this past Friday September 17th. In May, June and July the index touched on its 50-day moving average as it achieved these lows and used it as a resistance point to bounce back.
S&P 500 Trailing One-Year Price Chart
Source: Bloomberg
What is unique at this juncture is the confluence of macro and technical factors influencing investor sentiment all at one time. On the macro-side, we know the Federal Reserve is getting closer to tapering the pace of its monthly bond purchases. They meet this coming week, but its uncertain on whether they will act now or in November, which is what the broader market consensus believes. In addition, on the fiscal side, Democrats are beginning to advance a proposed $3.5 trillion budget, which may be preempted by an upcoming debt ceiling debate. As the deliberations on these issues is gathering momentum, investors are beginning to pay closer attention. Lastly, the Delta variant remains a concern, particularly if it leads to changes in behavior that might slow the progression of the economy.
Across markets, we are seeing some broader technical movements as investors appear to be reallocating their exposures. This past week we saw downward pressure on select commodities such as copper, gold and silver, all of which fell 2% or more on Tuesday. Elsewhere the drawdown in the price of iron ore is now near 50% from its May high. Alternatively, the price of natural gas continues to skyrocket. Within equity markets, a softening among U.S. stocks has not stopped Japanese equities, where the Nikkei 225 index hit a 31-year high this past week. We’ve also seen investors embrace risk in the bond market, where yield spreads on high yield bonds are now back to the lows of early July.
Collectively we are noticing a confluence of events that seems to be upending some of the trends that had been persisting earlier this year. As we look to the week ahead, there will be an intense focus on this week’s Fed meeting, where any policy changes will be announced on Wednesday. In addition, considering where the S&P 500 closed, and given that it’s been on a bit of a downtrend these last two weeks, it will be telling on whether the index can hold its current level, or face increased selling pressure should it break through its 50-day moving average.
All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value.
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 11.2 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 4.6 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization. An index is not a security in which an investment can be made, as they are unmanaged vehicles that serve as market indicators only and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. The Nikkei Stock Average, the Nikkei 225 is used around the globe as the premier index of Japanese stocks. Because of the prominent nature of the index, many financial products linked to the Nikkei 225 have been created are traded worldwide while the index has been sufficiently used as the indicator of the movement of Japanese stock markets. The Nikkei 225 is a price-weighted equity index, which consists of 225 stocks in the 1st section of the Tokyo Stock Exchange. The Nikkei 225 is comprised of 225 stocks selected from domestic common stocks in the 1st section of the Tokyo Stock Exchange, excluding ETFs, REITs, preferred equity contribution securities, tracking stocks (on subsidiary dividend) etc other than common stocks. The constituents are changed at the beginning of October every year based on the Annual Review. (There might be no change in components as the result of the review). The selection shall be conducted based on the two factors, “liquidity” and “sector balance”.
Advisory services are only offered to clients or prospective clients where Telemus and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Telemus unless a client service agreement is in place. All composite data and corresponding calculations are available upon request.
