Stocks just notched the fifth-worst start to September since 1928, and the worst week in a year and a half. This included a sharp drop for the S&P 500 on Friday despite the August jobs report showing a labor market that is "an ideal, middle-of-the-road" range, as Fundstrat Head of Research Tom Lee put it -- not so hot as to cause the Federal Reserve to further delay rate cuts, yet not so low as to suggest an imminent recession or hard landing.
The report showed 142,000 jobs created in August – lower than the 165,000 expected by consensus, but still an improvement on July’s numbers. Unemployment fell to 4.2% from 4.3% the month prior, in line with expectations. The number of industries adding jobs in August rose to 53% – the highest level since May.
"We expected stocks to rebound on today’s report," he admitted, "and while we are disappointed this did not happen, this does not preclude a rebound next week. There is arguably a paucity of fundamental reasons for this week's disappointing market movements." In Lee’s opinion, "investors have gotten overly gloomy."
Head of Technical Strategy Mark Newton did not disagree completely. On Friday, he acknowledged that "fear is creeping back into markets," citing a climbing equity put/call ratio that closed the week at the highest levels of the year. Like Lee, he feels the gloom might not be justified. "Looking at the market, we can see hiring is almost at a standstill, yet we're not really seeing layoffs. To me, that's the real key. We're not seeing broad unemployment."
He had this to say about this week's slump: "Based on my work, I see all of this as Technology-related – Tech and Energy. In the last week, we've seen great movement out of Financials and Healthcare. We had five sectors that moved to new monthly all-time highs as of the end of August. I think that's very, very good. This is a market where many different parts are doing very, very well."
Sector Allocation Strategy
These are the latest strategic sector ratings from Head of Research Tom Lee and Head of Technical Strategy Mark Newton – part of the September 2024 update to the FSI Sector Allocation Strategy. FS Insight Macro and Pro subscribers can click here for ETF recommendations, precise guidance on strategic and tactical weightings, detailed commentary, and methodology.
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