After a strong finish to last week, fueled by positive inflation data, market sentiment has taken a turn for the worse as trading resumed following the Thanksgiving holiday. Index futures were significantly lower early Tuesday, indicating a shift in risk appetite. Investors are now looking ahead to the monthly jobs data, considered a crucial factor in determining the Federal Reserve’s future decisions on interest rate cuts. The CBOE Volatility Index (VIX), often referred to as the fear gauge, surged by 6.37% to 16.54, reflecting heightened market uncertainty.
LPL Financial Chief Technical Strategist Adam Turnquist has flagged September as a potentially challenging month for the market. He anticipates flattish performance in the first half of September, with losses accelerating towards the end of the month. This caution stems from historical data: Since 1950, the S&P 500 has averaged a -0.7% return in September, and has closed higher only 43% of the time, making it statistically the worst month for stocks.
Futures Performance (+/-) on Tuesday morning:
* Nasdaq 100: -0.84%
* S&P 500: -0.59%
* Dow: -0.53%
* Russell 2000: -1.12%
Premarket trading saw the SPDR S&P 500 ETF Trust (SPY) fall 0.49% to $560.90, and the Invesco QQQ ETF (QQQ) decline by 0.67% to $473.09.
Last week’s earnings report from Nvidia Corp. (NVDA) had a dampening effect on the market. Stocks stalled before the release and experienced a pullback following the announcement. However, some offsetting positivity came from the core personal consumption expenditure index (PCE), the Fed’s preferred inflation gauge, which came in slightly below expectations. The Dow Industrials managed to weather the weaker sentiment, ending the week at a record high. The S&P 500 Index saw modest gains, while the tech-heavy Nasdaq Composite posted a weekly loss.
Despite early month turbulence following the unwinding of yen carry trades, the major indices closed August in the green. However, small-cap stocks experienced a down month.
Index Weekly Performance (+/-) for August:
* Nasdaq Composite: -0.92% (17,713.62) +0.65%
* S&P 500 Index: +0.25% (5,648.40) +2.28%
* Dow Industrials: +0.94% (41,563.08) +1.76%
* Russell 2000: -0.05% (2,217.63) -1.64%
According to Ram Ahluwalia, founder of wealth management firm Lumida Wealth, the current market’s risk-reward profile is unattractive. He argues that most stocks lack compelling valuations, making them undesirable for investment. Ahluwalia also expresses concerns about the future impact of artificial intelligence (AI), which has been a key driver of market growth. He cites recent less-than-positive reports on AI from Goldman Sachs and Morgan Stanley. Furthermore, he believes the market has already discounted a 50 basis-point rate cut in September, making it less likely to materialize. He anticipates a strong non-farm payrolls report for August.
Ahluwalia describes the market as operating on “accelerated time,” with rapid price swings driven by liquidity. He recommends tactically reducing net long exposure until the start of earnings season in October.
Upcoming Economic Data:
Investors are closely monitoring several key economic data points this week, including:
* Friday’s non-farm payrolls report for August
* July Job Openings and Labor Turnover Survey
* Private sector activity readings
* The Fed’s Beige Book
* Fed speeches
Other economic data releases include:
* S&P Global’s final manufacturing purchasing managers’ index (PMI) for August (expected to slip to 48 from 49.6 in July)
* Institute for Supply Management’s (ISM) national manufacturing survey results for August (consensus estimate of 47.9)
* Commerce Department’s construction spending report for July (consensus estimate of a 0.1% decline)
The Treasury will also auction three- and six-month notes at 11:30 a.m. EDT.
Stocks in Focus:
* Unity Software Inc. (U) rose over 6% in premarket trading after an analyst upgrade.
* United States Steel Corporation (X) fell over 7.5% following Democratic presidential candidate Kamala Harris’s statement that she opposes the company’s sale to Japan’s Nippon Steel.
* GitLab Inc. (GTLB), PagerDuty, Inc. (PD), and Zscaler, Inc. (ZS) are scheduled to announce their quarterly results after the market close.
Commodities, Bonds, and Global Markets:
* Crude oil futures declined sharply, while gold futures held up.
* Bitcoin (BTC/USD) rose but remained below the $59K level.
* The yield on the 10-year Treasury note edged down slightly to 3.909%.
* Global markets pulled back, with most major Asian markets closing lower. European markets also opened with losses, reflecting caution ahead of the U.S. jobs data.
