October 3, 2022
Good morning,
Awful. That’s the only way to describe the brutal end of a day, week, month, and quarter as September went out on Friday afternoon seemingly with a few fingers raised (yes, those two). The S&P 500 traded at unchanged levels almost all-day Friday, until the final 90 minutes when it fell -1.5% to close at new lows for the year and -1.3% below the June low. The June low has not yet officially been broken but evidence of the failure of that important support level is mounting. Things better change soon or June’s support will become Q4’s resistance – from a technical perspective.
It’s no surprise that the June lows are under assault. Like the Fed, most Central Banks around the world are on a mission to get inflation under control. France, Germany, U.K., and U.S. 10-year yields are now all significantly above June highs. Japan is the only G-7 country where 10-year are meaningfully lower than June highs. Not only can high interest rates slow an economy, but they are also a discount rate for stock valuations. Generally, higher rates translate to lower P/Es. It is no coincidence that stocks are breaking below June lows as interest rates are breaking above June highs.
Looking ahead, we are quickly approaching record oversold conditions for the market just as the calendar rolls into its seasonally strongest period historically. However, a likely offset may be the earnings reporting season that begins in two weeks where upside surprises may be a rarity.
Be well,
Mike