Weekly Market Outlook – Good Start, But Bad Finish

Posted by jbrumley on September 2, 2023 1:40 PM

Stocks logged a pretty big win last week, with the S&P 500 gaining 2.5% when all was said and done. It was the second weekly win in a row, reversing a rather rough three-week selloff. And, last week as the bigger win of the two, suggesting acceleration to higher highs.

Don’t be too quick to jump to that conclusion, however. There’s something less than convincing about the bullish effort. Namely, it finished feebly. Maybe that can be chalked up to the approaching three-day weekend. Maybe not.

We’ll weigh it all in a moment. Let’s first look at last week’s wave of economic announcements, which gave traders plenty to think about.

Economic Data Analysis

What a busy week!

The party started on Tuesday with last month’s consumer confidence reading from the Conference Board. It was surprisingly bad. Whereas the University of Michigan’s recovering reading slipped a little on August, the Conference Board’s measured tumbled back to a reading of 106.1. That’s a pretty significant slide, suggesting rebounding optimism has been unwound… in step with the market’s weakness and a few-too-many ugly economic headlines.

Consumer Sentiment Charts

Source: Conference Board, University of Michigan, TradeStation

It was also a big week for real estate. We heard both the Case-Shiller Index and the FHFA Housing Price Index figures on Tuesday as well. Although only for June, the data is still indicative of the bigger trend. And, that trend is still basically positive. Prices are still on the rise, even if that rise is slowing.

Home Price Charts

Source: Standard & Poor’s, FHFA , TradeStation

Just bear in mind these numbers only consider the average price of home sales without any considering of the number of homes being sold… or lack thereof. It could be (and likely is) the lack of inventory is keeping prices at relatively lofty levels.

While not charted or plotted here, take note of the fact that the second estimate of Q2’s GDP growth rate was dialed back from 2.4% to 2.1%. It could be worse. But, that’s far from a thrilling number.

You may have noticed there were a couple of other items reported earlier in the week last week that went unmentioned. That wasn’t an oversight. We wanted to include them with our look at last month’s jobs numbers. These include the JOLTS (job openings) and personal/income spending data, which help round out what the unemployment rate and payroll growth numbers are telling us.

In short, payroll growth of 187,000 jobs is better than expected, but the unemployment rate still ticked up from 3.5% to 3.8%. Also note that ADP’s count of new payrolls fell from July’s 371,000 to only 177,000 last month, falling short of the expected 195,000. To this end, it’s no real surprise that job openings themselves slipped to a two-year low of 8.83 million, and income growth only reached 0.2% versus expectations of a 0.3% improvement from July’s pay. Yet, spending was up 0.8%.

Unemployment Rate & Payroll Growth Charts

Source: Census Bureau, TradeStation

All in all the numbers say jobs are increasingly tougher to come by, and workers aren’t commanding the same sort of pay they were just a few weeks back. It’s ultimately a sign of economic weakness.

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

On Friday of last week we heard manufacturing numbers from the Institute of Supply Management. It was… better. The number improved from July’s figure of 46.4 to 47.6. Even so, that’s below the critical 50 level, and the bigger trend is still alarming. The services figure will be posted on Tuesday of this week. It’s above 50, and should remain so. Even then, however, it’s inching its way lower. Not good.

ISM Services and Manufacturing Index Charts

Source: Institute of Supply Management, TradeStation

Other than that, this holiday-shortened week is a pretty light one.

Stock Market Index Analysis

Stocks started last week out on a firmly-bullish foot. But, they didn’t finish with the same “umph.” They were fighting off a headwind on Thursday and Friday.

Nevertheless, all the indices are now back above all of their key moving average lines. That’s net bullish.

Take a look at the daily chart of the S&P 500 to see what we mean. The index blasted above its 20-day (blue) and 50-day (purple) moving averages on Tuesday, and never really looked back. The buyers just ran into a crowd of sellers on Thursday and Friday (although it could have been the approaching three-day weekend that sent people to the sidelines).

S&P 500 Daily Chart, with VIX and Volume

Source: TradeNavigator

The same goes for the daily chart of the NASDAQ Composite. That is, it punched through its short-term moving averages on Tuesday, but didn’t follow through all that well.

NASDAQ Composite Daily Chart, with VXN

Source: TradeNavigator

Again, maybe it was the looming three-day holiday, or perhaps traders just wanted to see how things were going to pan out after Tuesday’s big pop. Either way, it’s arguable a slight cooling-off of the rally late in the week is the best thing that could have happened at this time.

Zooming out to a weekly chart of the S&P 500 gives us a little more perspective on what’s happening here. Notice there’s room and reason for the index to continue moving higher before bumping into the technical resistance line (light blue, dashed) that connects all the key highs going back to November.

S&P 500 Weekly Chart, with VIX and Volume

Source: TradeNavigator

The weekly chart also shows us something else that’s concerning. Check out the lowest portion of the chart. That’s the volatility index, or VIX, which is also called the fear gauge. It’s simply too low right now, indicating a lack of fear -- not unlike the condition we saw right before the big stumble that took shape at the beginning of August. (As the old adage goes, expect it when you least expect it.) Also notice that while last week was a big win for the S&P 500, once again the buying volume behind the move was light. This isn’t a majority opinion… as far as we can tell.

The weekly chart of the NASDAQ Composite is telling us the same basic story. That is, there’s not a lot of volume behind the bullish effort, and the NASDAQ’s volatility index (VXN) is finding a floor. This suggests most traders don’t see any real trouble ahead, which of course is often when trouble arises.

NASDAQ Composite Weekly Chart, with VXN and Volume

Source: TradeNavigator

Also bear in mind that, on average, September is one of the very worst months of the year for stocks. While a few extreme losses exaggerate this bearish average, it would still be a poor month even without those outliers. This is what sets up the beginning of the usual year-end strength beginning in October.

Connect the dots. The momentum here is technically bullish. It’s also quite questionable.