Stocks lost more ground in September, the second consecutive month of decline. The losses appear to be driven by the evolving sentiment that interest rates will remain higher for longer. This caused valuation multiples to compress across almost all stocks. For the month, both the S&P Composite 1500 and S&P 500 declined 4.9%; the Mid-Cap 400 lost 5.4% and the Small Cap 600 fell 6.2%.
With September’s declines, the S&P Composite 1500 has fallen below its August 18 intraday low of 986.00, extending the downtrend from its peak of 1048.51 set on July 27. In the first trading days of October, the index has fallen further to 976.84 (10/6), which represents a decline of 6.8% from its July 27 peak.
At the current level, the index is nearing the top of the estimated range of the correction (using Fibonacci retracement analysis with the assumed start of the advance at the October 13, 2022 intraday low of 799.04).
Fibonacci analysis suggests a range for the bottom between 900 and 950, highlighted in the shaded region above. Of course, these are guidelines only: Mr. Market will do what he will. The range does seem viable given the pattern of trading over the past year.
Based upon the chart, I see possible support around the 940 level. If that fails, the next support stop may be 900-920. Yet, the rally over the past few days suggests that market is trying to bottom and therefore that the correction may be over.
Sectors. Once again, Energy was the best performing sector in September and the only one to post a gain. Losses in the other sectors ranged from the 3.3% declines in Financials and Communication Services to the 7.9% drop in Real Estate. Interest sensitive stocks were generally among the worst performers, but not entirely, as evidenced by Financials, the second best performing sector.
The 20 largest megacap stocks, which account for 39.4% of the Composite 1500’s market capitalization, performed in line with broader market with an estimated 4.9% decline.
The remaining 1,480 stocks, representing about 60.6% of the Composite 1500’s market capitalization, posted a market-cap weighted average decline of 4.8%, according to my estimates.
Among the sectors, Industrials and Info Tech contributed the most to the S&P 1500’s decline (excluding the top 20), accounting for an estimated 0.94 and 0.88 percentage points of the overall decline.
Outside of large cap, the S&P Mid-Cap 400 fell 5.4%, led by the declines in Industrials, Consumer Discretionary, Real Estate and Info Tech. The S&P SmallCap 600 dropped 6.2%, due mostly to declines in Info Tech, Consumer Discretionary, Health Care and Financials.
Published and Posted on October 10, 2023
Stephen P. Percoco
Lark Research
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