The Utilities have been the worst-performing sector in the S&P 500 for most of the year. Even after a 6% bounce from their lows, the group is still down 15.7% for the year, nearly double the next worst sector (Consumer Staples, 8.9%).
Are the Utes finally turning the corner?
Most of the market is off to a strong start in October. Just not the Consumer Staples sector.
Since the S&P 500 bottomed on October 3, it’s risen 3.5%. Over that time 10 of the index’s 11 sectors are up at least 2.4% from their respective lows. Consumer Staples meanwhile, has risen just 0.5%.
And if today’s trading holds, the sector will touch a new year-to-date low.
We’re entering the most bullish time of the year for Health Care stocks. October and November have been the sector’s two best months since 1990, with average monthly gains of 1.6% and 2.5%, respectively.
We’ll see whether the month’s strong start can carry over to the balance of the year.
How’s the stock market doing this year?
The answer, even more than usual, depends on how you define ‘the stock market’. Is it the Dow? The S&P 500? Perhaps the NYSE Composite?
If the market means the NASDAQ, things look pretty great – that index is up nearly 30% for the year. Dig a little deeper, and the picture isn’t quite so rosy. The Dow Jones Industrial Average and NYSE Composite are barely in positive territory. The small caps are actually down for the year. This is a market defined by the haves and the have-nots.
The S&P 500 rose in the first week of October after 4 consecutive weeks of decline. Another streak also ended last week, when the US Dollar index failed to close higher. The Dollar’s run ended just short of the record set back in 2014. Interest rates, meanwhile, continued to rise, with 30-year Treasury yields briefly surpassing 5%. Crude oil dropped sharply. It’s 9% selloff was the worst since the failure of SVB back in March.
All year, economists have been waiting for the ‘inevitable’ recession that comes with a massive Federal Reserve tightening cycle. Jerome Powell & Co. have raised short-term interest rates by more than 5% since last spring, the fastest pace of hikes since Paul Volcker’s efforts to break the back of inflation in the 1980s. But instead of recession, the US economy keeps on chugging along. The US added 336,000 jobs in September, the best payrolls print since January. That keeps the number of job openings per unemployed worker at roughly 1.5 – far higher than anything the country experienced prior to 2020.
It’ll be time to get more positive if Financials can get back above 600 – the level that has caused so many issues over the last 18 months.
On the flip side, things will look very dark indeed if we break last year’s lows. Those lows didn’t occur at some random place. In fact, they couldn’t have occurred at a more important place: the 2007 highs.
We said it was make-or-break time for the Industrials. Well, they broke.
This massive failed breakout will most likely take some time to repair. Until then, we expect both the sector and the overall market to be choppy and rangebound.
The Financials sector is stuck in no man’s land. Ever since the failed breakout in March, there’s been little reason to get excited about this group – either from the short or the long side. Instead, we’re left with prices that are messy and rangebound.
Long-term resistance for the Energy sector has simply been too much to overcome. We’ve been dealing with the 2008 and 2014 highs since last June. At some point, maybe we’ll get the long-awaited breakout. Or we might not. But the risk isn’t really skewed in our favor unless buyers can assert control and push prices to new highs.
The Grindstone Intelligence Sector Outlook is based on our top-down technical approach. These ratings reflect our views over the coming month.
