The 1-Minute Market Report September 11, 2023

In this weekly market report, we look at the various asset classes, industries, equity categories, and exchange-traded funds (ETFs) that moved the market higher and the market segments that defied the trend by moving lower.

Identifying the winners and losers allows us to see the direction of significant financial flows and their origin. Indications of widening market participation are showing up in the data. As this pattern persists, the sustainability of the bull market will steadily improve.

The S&P 500 pullback resumes.

For the holiday-shortened week, the S&P 500 was down 1.3%. We are now 2.7% below the 2023 high water mark, set on July 31. The market is still in the process of digesting its gains and broadening its participation.

A look at monthly returns.

This chart shows the monthly returns for the past year. The August decline of 1.8% was relatively mild. September is off to a negative start, and history shows that September is the weakest month of the year, on average.

The bull market slips back below the trend line.

This chart highlights the 24.6% gain in the S&P 500 from the October 2022 low through Friday's close. The index is now 6.5% below its record high close on January 3, 2022.

The Golden Cross.

The market entered a Golden Cross configuration (a Golden Cross occurs when the 50 day moving average crosses above the 200 day) on February 2, 2023. 

The spread between these two moving averages is beginning to narrow a bit. Today it stands at 7.4%, more than three times as wide as the long term average of 2.3%. This wide spread is one of the reasons I'm expecting the current pullback to continue. 

Major asset class performance.

Here is a look at the performance of the major asset classes, sorted by last week's returns. I also included the year-to-date returns as well as the returns since the October 12, 2022 low for additional context.

The best performer last week was Managed Futures, which have the ability to go short during periods of market weakness. 

The worst performing asset class last week was small cap equities. Small caps had been outperforming large caps for the past few weeks. 

Equity sector performance

For this report I use the expanded sectors as published by Zacks. They use 16 sectors rather than the standard 11. This gives us added granularity as we survey the winners and losers.

Energy stocks led the way higher last week, riding the wave of surging oil prices. 

Defense contractors gave back some of their recent gains, dropping 4.76%.

Retailers continued their slide, which started in early August.

Equity group performance

For the groups, I separate the stocks in the S&P 1500 Composite Index by shared characteristics like growth, value, size, cyclical, defensive, and domestic vs. foreign.

The S&P Top 7 stocks by market cap held up better than the rest of the equity groups on the list.

The worst performing groups were small and mid cap stocks. 

The S&P Top 7

Here is a look at the seven mega-cap stocks that have been leading the market all year. Apple and NVDIA were both down 6% for the week. Microsoft, the strongest of the group, gained 1.7%. 

These seven stocks account for 75% of the total YTD gain in the S&P 500. That's down from 82% just two months ago, providing evidence that participation in the bull market is broadening out. 

The 10 best performing ETFs from last week

Cannabis stocks rallied again last week on hopes for less stringent regulation going forward. The recreational use of cannabis has been legalized in 23 states, three U.S. territories, and D.C.

TheStreet.com had this to say: "The current rally is based on the hope that conditions for marijuana businesses are going to improve. The Senate and the White House are planning to prioritize these agenda items, so we could see results before the end of the year."

The 10 worst performing ETFs from last week

China stocks slid 6.9% last week. Here's what the New York Times had to say: "The slump in the Hang Seng Index, which is made up mostly of companies from China's mainland, comes as the country's economy confronts weakening growth. After three years of harsh Covid restrictions, foreign investment is down, consumers are spending less and the housing market is in turmoil." 

The 10 best performing stocks from last week

Here are the 10 best performing stocks in the S&P 1500 last week.

Private equity firm Thoma Bravo acquired NextGen Healthcare for $1.6 Billion.

The 10 worst performing stocks from last week

Here are the 10 worst performing stocks in the S&P 1500 last week. 

Methode Electronics shares fell on mixed Q1 earnings results & a dismal outlook.

Final thoughts

Despite the broadening of participation we've been seeing lately, the S&P Top 7 stocks continue to dominate the market. As the following chart shows, these seven mega-cap tech stocks account for 75% of the S&P 500 YTD gain. 

A hypothetical portfolio comprised of these seven stocks, weighted equally, would be up by 93.5% YTD, vs. 16.1% for the S&P 500. The next chart bears this out.

Since the recent market peak on July 31, both the S&P 500 and the Top 7 cohort are down by 2.7%. This tells me that the Top 7 stocks are not "rolling over" or leading the market lower. What we're seeing instead is a mild, orderly pullback that has broad participation. Put another way, it looks like investors are trimming back their exposure to a broad range of equities, rather than focusing on the more expensive market leaders.

As this pullback continues to play out, I will be paying close attention to what's happening with the Top 7. For now, at least, they still call the tune.