Stocks End Three-Week Losing Streak Despite Challenges From Surging Yields, Seasonality

“Science is the great antidote to the poison of enthusiasm and superstition.” ~ Adam Smith

Good evening:

August has been a challenging month, and we opened this week with the S&P 500 down around 5% for the month. China’s economic woes, rising oil prices, and surging yields here in the U.S. have only added to the challenging seasonality associated with the month of August. Although the market ended up on Friday and slightly higher for the week, Head of Research Tom Lee said he was resigned to August “likely [being] a down month.”

At our weekly huddle, Head of Technical Strategy Mark Newton agreed that this was a possibility. “Rates need to back down to support a bullish view for equities,” he asserted, while warning that his work did not show rates doing so in the immediate-term. “I think rates are still in a peaking process,” he said. “When I look at sentiment, seasonality, Elliott wave, DeMark, all of that – the cycle shows a downward pattern in rates really September and October of this year to next spring or summer.”

Yet, Lee said that despite this, now might be the time to begin to add risk – though still “timidly” due to August seasonality. He explained, “Equities are showing early signs of diverging from higher rates.” Thou...