The US equity rally over the last nine of 11 days has been constructive enough to think a move back to new highs can happen into September ahead of any seasonal Fall correction. The Equal-weighted SPX has already pushed back to new all-time high territory coinciding with the breakdown in the US Dollar and Treasury yields. Furthermore, market breadth remains constructive and Sentiment is not yet bullish enough to mark a larger market peak. Cycles show strength into mid-September in both Equities and Treasuries before a selloff takes hold, and sectors like Financials and Consumer Discretionary have been instrumental in serving as a “tailwind” for Equity gains at a time when Technology has been a bit wobbly. Overall, unless Technology starts to roll over in bigger fashion or the economy starts to weaken at a much faster rate, it looks right to stay bullish past Labor Day and expect any weakness into the Jackson Hole meeting likely proves short-lived.
Overall, Equities likely are entering a tougher seasonal stretch as August comes to a close next week, but at present, it remains difficult to say with a lot of conviction that any larger pullback is upon us.
Despite Thursday’s -1.4% decline in QQQ it’s worth pointing out that the Equal-weighted SPX (which had recently moved back to new all-time highs) finished down just -0.28%. Additionally, three sectors finished in positive territory, with Financials leading the charge.
Trends in US Dollar along with precious metals and Treasury yields showed mild hiccups” yet no real damage occurred outside of Technology and Communication Services.
As the chart below shows, a sharp bearish decline ahead of a potentially market-moving Jackson Hole FOMC gathering likely could bring about some support for US Equities, and it remains early to have a bearish opinion for those that study price action.
I suspect that the upper edge of this current daily Ichimoku cloud (shown below) could serve to act as support on any early Friday weakness, and there seems to be ample support found near 5550, or less than 30 points away.
Heading into Friday, any hint of Powell pushing back on the rate cuts that have been priced into the market thus far might cause a bit more weakness. At present, the Swaps market is pricing in 95 basis points of cuts through December, suggesting that the Fed could cut at each of its three remaining meetings this year. Conversely, if Powell sticks to the dovishness that was apparent at the FOMC meeting in July, then markets likely could rally back to highs.
The general theme is that stock indices tend to perform best when no surprises happen between the Fed and current market expectations.
As for the SPX, shown below, there should be support found near 5550 into Friday.
S&P 500
XLP (Consumer Staples sector SPDR ETF) has just pushed back to new all-time highs
Given the strength of stocks like KO and WMT lately, XLP has now risen to exceed the prior peaks from early 2022. (See chart below)
The Staples ETF, however, tends to be quite concentrated, with the top three stocks representing over 30% of the XLP ETF. However, this does look to be the start of some strengthening in Consumer Staples after a lengthy period of underperformance.
My Ten top Consumer Staples stocks from a technical perspective are as follows ( in no particular order) :
WMT 0.13% , COST 0.14% , USFD 0.65% , PM 0.04% , MO 1.18% , KO 0.53% , K -0.17% , CL 0.25% , UL 1.73% , and PG -0.58% .
SPDR Select Sector Fund – Consumer Staples
Staples is strengthening, but still hasn’t broken out vs. Equal-weighted SPX
Despite the recent pickup in strength for Staples, it’s still early to expect a meaningful period of outperformance vs. the S&P 500. (If this were to happen, it likely would coincide with a 2024 Fall selloff for US Stock indices.)
As shown below, in relative form, and when looking at Equal-weighted Staples to avoid some of the dominant names, this recent bounce has not proven sufficient towards thinking Staples should outperform.
Thus, while XLP has pushed back to new all-time highs in the last week, and Staples has surely stabilized, this sector still remains trending lower vs the SPX in equal-weighted terms.
However, despite the ongoing downtrend, there has been a notable shift in momentum, which has turned back higher very quickly. Thus, this could be more bullish for this defensive group in the weeks ahead.
Equal-Weight Staples / Equal-Weight S&P 500
Consumer Discretionary has broken down vs Consumer Staples in the month of August
One interesting ratio that I normally like to “keep handy” concerns the relationship between Discretionary to Staples, which tends to trend sharply higher during times of “risk-on” type trading when Equity markets are rallying.
Conversely, Staples starts to lead when markets begin to turn down.
Thus, the break of a greater than two-year uptrend in Discretionary vs. Staples is normally something to pay close attention to which (in this case) might start to jumpstart a larger period of relative strength for Consumer Staples.
As seen below, momentum has been showing some negative divergence (per MACD) following this indicator failing to follow the ratio back to 2024 highs into this past Spring.
Furthermore, the breakdown in this trend is thought to be a negative for the relationship of Discretionary to Staples and normally serves as an early warning of possible defensiveness starting to creep back into US Markets.
This will be something to watch carefully in the weeks and months to come, but normally these signals are worth paying attention to.
Equal-Weight Discretionary / Equal-Weight Staples
