August Recap And What To Watch For In September
The last trading day in August just closed and somehow I think most traders don’t feel like they just came off a pretty positive month.
But we did… A net ~2% gain in the markets is pretty good for a slow summer month… even though it might not have felt like that.
That makes 4 consecutive bullish months in the broad market with some pretty massive intra-month pullbacks along the way.
So, what did we learn in August?
Well, #1: Yes, it’s true, the bigger they are, the harder they fall.
High-flying stocks (such as the tech leaders) certainly have the ability to get hit the hardest.
But #2: once that correction starts, it doesn’t mean “the end of tech” or anything like it.
This market has been remarkably resilient and August is a testament to that. It felt like the bottom fell out, and yet the tech sector (XLK) will finish August slightly in the positive and just a few percent down from its highs.
This is pretty amazing!
#3: With lower volume, volatility swings are bigger.
We’ve seen these recent low liquidity days flip around aggressively even without a major catalyst. The norm lately has been an overnight bullish correction and then a market that fades off during the day.
I don’t want to read too much into it, but I think it’s a bad sign for the market when each gap up gets sold back down. But, like I said, when volume is low it’s hard to know how much conviction is in those moves.
#4: Global economies matter!
The Yen carry trade required a lot of liquidity to be sucked out of the US markets to exit those positions. The next “yen carry trade” pullback could be BRICS, War, or crypto, but regardless, the rest of the world has a massive impact on US stocks whether we like it or not.
#5: While the market has been resilient, it’s also delicate. That might sound like an oxymoron, but I think it’s true.
The market has been resilient, but it’s like the big, bad boss in those old video games (is that still how it works?). He might keep surging back every time he gets hit… but when that last bit of health goes away, look out…
How many more hits can the big, bad US market take and keep finishing green on the month?
Now comes September, traditionally one of the worst-performing months in the market.
The coming Fed rate cut will certainly try to stay that heading into the election and I still tend to think we won’t get a major correction until after the election (maybe even into Q1 of 2025).
But with the pullbacks we’ve seen in the last two months, I am being very cautious with that expectation.
The biggest thing to watch is if we do indeed get the interest rate cut (we all assume yes). But more importantly, if they get aggressive and go for 50 basis points (most assume no).
But regardless of what happens with the cut, I think sector response is the most important factor. Watching “undervalued” sectors like energy along with lagging areas like small caps (which should do well in lower interest environments) is going to be key.
And we really want to see if tech is still going to lead the way in a rate-cutting atmosphere.
If tech slumps (and I mean even if we got altogether bullishness but another sector takes the lead), that’s going to be a critical element to keep in mind for the remainder of 2024 and into 2025.
And don’t forget about gold and commodities; they could end up having more potential than any regular equity based on where we go from here.
— Nate Tucci
P.S. Speaking of what to watch for in September, Graham nailed the August 6th bottom and is going live on Tuesday to give his boldest Q4 predictions.
He’s also explaining how to target up to a triple-digit gain on 3 or 4 opportunities.
