Daily Open Oversold in September rebound in October

Daily Open: Oversold in September, rebound in October? –

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

Michael Nagle | Bloomberg | Getty Images

This report comes from today’s CNBC Daily Open, our new newsletter for international markets. CNBC Daily Open tells investors everything they need to know, no matter where they are. Do you like what you see? Here you can sign up.

Bad quarter for the markets
U.S. stocks were mixed on Friday, with the Nasdaq Composite the only major index to gain slightly. But all indices fell in the quarter. Europe’s Stoxx 600 gained 0.38% but also ended the quarter down 2.9% – its worst quarterly performance in a year. According to flash estimates, inflation in the euro zone fell to 4.3% in September. This is the lowest annual value since October 2021.

PCE inched up
The personal consumption expenditure index rose 3.5% year-on-year in August and 0.4% month-on-month. Excluding food and energy, core PCE rose an expected 3.9% and 0.1% lower than expected – the smallest monthly increase since November 2020. PCE is the Federal Reserve’s preferred measure of inflation because it tracks consumer behavior and more measures the prices.

Shutdown suspended
The US Senate passed a last-minute spending bill on Saturday, narrowly avoiding a government shutdown. However, the bill only allows the U.S. government to stay open for another 45 days — and allows lawmakers to craft more permanent funding legislation. In particular, the bill does not provide any new funding for Ukraine’s ongoing war with Russia.

Automatic strikes are on the rise
The United Auto Workers union expanded its strikes on Friday, halting work at another Ford plant and another GM plant. This means that 6,900 more auto workers will join the approximately 18,300 workers already on strike. Stellantis was spared from further strikes, said UAW President Shawn Fain, because the company had made “significant progress” in negotiations with union members.

[PRO] Job week
This week it’s all about the job market. The August Job Vacancies and Labor Turnover Survey is out Tuesday and will show how many workers have voluntarily left their jobs, a key indicator of workers’ confidence in finding a new job. And the September jobs report will be released on Friday, showing whether the labor market is still tight as recent jobless claims data suggests.

Even a lower than expected core PCE reading – up just 0.1% for the month! – failed to cheer up investors.

Stocks mostly fell Friday due to September’s seasonality. 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 lost 4.87% and the Nasdaq fell 5.81% – both indexes posted their worst monthly performance since December. The Dow lost 3.5%, its worst since February.

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

“A severely oversold condition is beginning to develop,” Wolfe Research analyst Rob Ginsberg said in a note Thursday. Only 15% of stocks are trading above their 50-day moving average, Ginsberg said.

This observation is echoed by Adam Turnquist, chief technical strategist at LPL Financial. Turnquist noted that the S&P’s relative strength index – a measure of stocks’ momentum – fell to its lowest level in 12 months, suggesting stocks have reached oversold levels this week.

While oversold is not a guarantee that stocks will recover, this condition suggests that stocks are cheap relative to their current price range, making it “easier.” [stocks] to go higher,” Katie Stockton, founder and managing partner of Fairlead Strategies, told CNBC. This could be a good time for intrepid investors to wade into the water.

After all, October is historically a successful month for stocks, according to data from Stock Trader’s Almanac. Between 1950 and 2021, the S&P ended October 0.9% higher on average. Here’s hoping October brings some relief from the scorching summer heat we’ve had to endure at the markets.