S&P 500 (SPX) fell 2.1% last week to mark the third consecutive week of selling. The index now trades about 5% below the most recent high.
NASDAQ Composite (IXIC) lost 2.6% to hit important short-term support at 13200. The 100 daily moving average sits at 13071. Dow Jones Industrial Average (DJI) also experienced a selloff, falling 2.2%.
“A combination of technical and fundamental factors have been pressuring equities in August, a month that’s already a seasonally weak time of year. Technically, the multi-month rally led to a crescendo of pain in July, as the advance proved too much for many people, prompting an avalanche of chasing and towel throwing (some of the most prominent bears flipped bullish last month),” Vital Knowledge analysts wrote in a report to clients.
All eyes on Nvidia and Powell
This week is packed with important events that could help shape the near-term future of the U.S. market. The main macro event this week will be the Fed’s Jackson Hole conference, including Chair Jerome Powell’s speech at the event on Friday.
“The average J-Hole doesn’t generate more market volatility than any other trading day,” said Piper Sandler analysts.
“True, this econometric evidence far from precludes Powell from saying something provocative on August 25. We’re on watch. But we reckon like most times he’ll take a pass this year. Unlike, say, in 2010 or 2012, when Bernanke addressed newfangled unconventional policy measures, we cannot think of another such recent innovation or stance that Powell needs to elaborate on or clarify. The bar is high for front-running the Committee.”
Elsewhere, the flash PMIs for August and the U.S. jobs data revisions are both out on Wednesday. On the earnings front, Zoom Video Communications (NASDAQ:ZM) is reporting on Monday after market close.
Lowe's Companies, Inc. (NYSE:LOW) is expected to report on Tuesday, a day before Nvidia (NVDA) takes the central stage. Other notable earnings reports include Snowflake Inc. (NYSE:SNOW), Dollar Tree, Inc. (NASDAQ:DLTR), and Marvell Technology, Inc. (NASDAQ:MRVL).
What analysts are saying about U.S. stocks
Vital Knowledge analysts: “Valuation constraints are very real, and they will prevent the SPX sustaining a move above 4550-4600 for the time being, but fundamentals don’t justify the slump below 4450, which is why the risk/reward is now back in positive territory. The problem is that the next round of inflation figures won’t hit for a few more weeks, forcing investors in the meantime to fester in the present stew of doubt and gloom.”
Sevens Report analysts: “The market of 2023 is being defined almost by hyperbolic extremes. We started 2023 with investors fearing a catastrophic recession, 1970s- style inflation and 1970s-style rate hikes. That hasn’t happened. But just because that didn’t happen, it doesn’t mean that: No economic slowdown will occur, inflation will magically crash to late 20-teens levels, and the Fed will suddenly turn dovish (as markets priced in at 4,600). The truth is in the middle, and that’s where we are now.”
JPMorgan analysts: “Finally, SPX P/E in particular has moved from 17x in January to 19x forward at present. Even ex Tech, multiples have rerated. Relative to this optimism, it is not clear to us that the Growth-Policy tradeoff has materially improved. Perhaps risks have merely not been realized yet, rather than being nullified.”
Goldman Sachs analysts: “We find that US investors have room to further increase their exposure to equities. Should the US economy continue on its path to a soft landing, we believe the recent decrease in equity length will be short-lived. The re-opening of the buyback blackout window will provide a boost to equity demand in coming weeks although a flurry of expected equity issuance this fall may provide a partial offset.”
Oppenheimer analysts: “Market weakness has re-stirred the bearish worry-go-round. We counter that the market is conservatively undervalued based on historical cycles, and believe an opportunity to buy into an ongoing advance is forming. For S&P 500 levels, we see 4,300 as attractive support followed by 4,200. Against seasonal headwinds through Q3, we think long-term investors can start accumulating their top ideas understanding additional backing and filling would be reasonable over the coming weeks.”