A four-week winning streak for the market came to an end last week. The simple reason why is that the market was overbought on a short-term basis and due for a pullback. Of course, there was more to it than that.
For the week, the Russell 2000 was down 2.9%, the Nasdaq Composite was down 2.6%, the S&P 500 was down 1.2%, and the Dow Jones Industrial Average was down just 0.2%.
Lost in that losing mix is the recognition that the S&P 500 was up as much as 1.1% for the week on Tuesday at 4,325.28. That was a whisker shy of its 200-day moving average, which provided some stern resistance and acted as a barrier to follow-through buying efforts.
For many, it became the appropriate stopping point to take some money off the table following a spirited run that saw the S&P 500 gain 18.9% between its low on June 16 and that Tuesday high. There were some news catalysts in the mix this week that contributed to that mindset.
- China reported a weaker-than-expected batch of retail sales, industrial production, and fixed asset investment data for July.
- The NAHB Housing Market Index for August fell to 49 (a reading below 50 is considered to be negative sentiment), marking the eighth straight monthly decline in the index.
- The Empire State Manufacturing Survey for August sunk to -31.3 from 11.1, which was one of the lowest readings on record.
- July Housing Starts were weaker than expected.
- Total retail sales in July were unchanged from June.
- Existing home sales declined 5.9% month-over-month in July, marking the sixth straight month of declines.
- St. Louis Fed President Bullard (2022 FOMC voter) said he is still leaning in favor of a 75-basis point rate hike at the September FOMC meeting.
- Minneapolis Fed President Neel Kashkari (2023 FOMC voter) said he does not know if the Fed can bring down inflation without triggering a recession.
- Target (TGT) and Kohl’s (KSS) reported weaker than expected earnings results and Analog Devices (ADI) and Applied Materials (AMAT) had some cautious commentary on recent business activity, offsetting some of the positivity stemming from better-than-expected reports out of Home Depot (HD), Walmart (WMT), and Cisco (CSCO).
- UK inflation hit a 40-yr high of 10.1% year-over-year in July.
- Germany’s Producer Price Index was up 37.2% year-over-year in July, which was the highest reading in more than 70 years.
As one can see, there was a heavy economic drag throughout the week that served as a reminder that the market might have gotten ahead of itself with its rebound enthusiasm. In the same vein, a 10-yr note yield pushing 3.00% was a testament to underlying inflation angst and a renewed headwind for many growth stocks that had logged big gains off the June lows.
The Russell 1000, 2000, and 3000 Growth Indexes were down 1.7%, 3.1%, and 1.8%, respectively, this week versus losses of 1.2%, 2.8%, and 1.3% for the Russell 1000, 2000, and 3000 Value Indexes, respectively. The Vanguard Mega-Cap Growth ETF (MGF) fell 2.1%.
The losses across the board for the Growth and Value Indexes underscores the relatively broad-based pullback that occurred this week. To be fair, though, most of the damage came on Friday’s options expiration day. Entering Friday, the S&P 500 was up less than 0.1% for the week.
There was some fallout on Friday in the meme stock space that served as a reality check of the speculative excess that had been building there throughout the week and certainly since the mid-June lows. Bed Bath & Beyond (BBBY) was the epicenter of Friday’s movement, plunging 40.5% in response to a report that Ryan Cohen’s RC Ventures had sold its entire stake and a Bloomberg Law article that suggested Bed Bath & Beyond has hired Kirkland & Ellis to help address matters pertaining to the company’s debt load.
The weakness in the meme stocks spilled into the broader market as a selling catalyst along with the 10-yr note yield’s test of 3.00%.
For the week, eight of the 11 S&P 500 sectors finished lower with losses ranging from 0.6% (health care) to 3.3% (communication services). The winning standouts were consumer staples (+1.9%), utilities (+1.0%), and energy (+1.0%).
- Dow Jones Industrial Average: -7.2% YTD
- S&P Midcap 400: -9.3% YTD
- S&P 500: -11.3% YTD
- Russell 2000: -12.8% YTD
- Nasdaq Composite: -18.8% YTD
Source: Briefing Investor
