Oversold in September, bounce in October?

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, US, Monday, June 27, 2022.

Michael Nagel | Bloomberg | Getty Images

This report is from today’s CNBC Daily Open, the new newsletter for international markets. CNBC Daily Open keeps investors informed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Bad quarter for markets
US stocks were mixed on Friday, with the Nasdaq Composite the only major index to rise slightly. But all indicators decreased during this quarter. The pan-European Stoxx 600 index added 0.38%, but also ended the quarter down 2.9% – its worst quarterly performance in a year. Meanwhile, inflation in the euro zone fell to 4.3% in September, according to preliminary estimates. This is the lowest annual figure since October 2021.

The personal consumption expenditures rate increased
The personal consumption expenditure index for August rose by 3.5% compared to last year and by 0.4% during the same month. Excluding food and energy, the core PCE index rose an expected 3.9% and a lower-than-expected 0.1% – the smallest monthly increase since November 2020. The PCE index is the Fed’s preferred measure of inflation because it measures consumer behavior rather than just prices. .

The closure has been suspended
The US Senate approved a last-minute spending bill on Saturday, narrowly avoiding a government shutdown. However, the bill only allows the US government to stay open — and for lawmakers to prepare more sustainable funding legislation — for another 45 days. The bill specifically rules out new funding for Ukraine’s ongoing war with Russia.

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Expand automatic strikes
The United Auto Workers union expanded its strikes on Friday, halting work at another Ford plant and an additional General Motors plant. This means an additional 6,900 auto industry workers will join the approximately 18,300 workers already on strike. UAW President Sean Fine said Stellantis was spared additional strikes because of the “significant progress” the company made in negotiations with union members.

[PRO] Jobs Week
This week is all about the job market. The August Job Opportunities and Labor Turnover Survey will be released on Tuesday, giving insight into the number of workers who have left voluntarily – a key indicator of employees’ confidence in finding a new job. The September jobs report will be released on Friday, showing whether the jobs market remains tight, as recent data on unemployment claims indicated.

Even the core PCE reading was lower than expected – up just 0.1% for the month! — Investors cannot cheer.

Due to the seasonality of September, most stocks fell on Friday. The S&P 500 lost 0.27%, the Dow Jones Industrial Average fell 0.47%, but the Nasdaq Composite rose 0.14%.

All three indices ended September in the red. The S&P fell 4.87% and the Nasdaq fell 5.81%, the worst monthly performance for both indexes since December. The Dow Jones lost 3.5%, its worst performance since February.

When viewed on a quarterly basis, the numbers are actually better, indicating just how bad September was for stocks. The S&P fell 3.65%, the Dow Jones fell 2.62% and the Nasdaq fell 4.12%, its largest decline since the second quarter of 2022.

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“Oversold conditions are beginning to develop,” Rob Ginsberg, an analyst at Wolff Research, said in a note on Thursday. Only 15% of stocks are trading above their 50-day moving average, Ginsberg said.

It’s an observation echoed by Adam Turnquist, chief technical strategist at LPL Financial. Turnquest noted that the S&P’s Relative Strength Index — a measure of a stock’s momentum — fell to a 12-month low, suggesting stocks have reached oversold levels this week.

Although overselling does not guarantee a stock will rebound, this condition indicates that the stock is cheap compared to its recent price range, making it “easier for investors.” [stocks] “For the rally, this may be a good time for bold investors to wade into the waters,” Katie Stockton, founder and managing partner at Fairlead Strategies, told CNBC.

After all, October is historically a successful month for stocks, according to data from the Stock Trader’s Almanac. Between 1950 and 2021, the S&P finished October up 0.9% on average. Hopefully October will bring some relief from the scorching summer heat we had to endure in the markets.

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