In our weekly market analysis, we delve into the performance of various asset classes, industry sectors, equity categories, and exchange-traded funds (ETFs) that shaped market movements in different directions.
Identifying the victors and the vanquished enables us to discern significant financial currents and their sources. Data indicates a widening participation in the market, bolstering the sustainability of the ongoing bull market.
Resuming the S&P 500 Downturn
Over the shortened holiday week, the S&P 500 contracted by 1.3%, positioning it 2.7% below its peak 2023 on July 31. The market is currently undergoing a phase of assimilating gains while broadening its reach.
A Glimpse at Monthly Returns
This chart tracks monthly returns over the past year. August experienced a relatively mild decline of 1.8%. September, historically the weakest month on average, has started negatively, in line with past trends.
Regression Below the Bull Market Trend Line
The chart below highlights the S&P 500’s remarkable 24.6% ascent from its October 2022 low to last Friday’s close. It stands 6.5% below the record-high close observed on January 3, 2022.
The Golden Cross Indicator
The market adopted a Golden Cross configuration (indicating the 50-day moving average crossing above the 200-day moving average) on February 2, 2023.
Performance Analysis of Major Asset Classes
A glance at the performance of major asset classes, sorted by returns from the previous week, along with year-to-date and post-October 12, 2022, returns, provides additional context. Managed Futures emerged as the best asset class last week, while small-cap equities recorded the poorest performance despite their recent outperformance of large-cap counterparts.
Equity Sector Analysis
For this report, we utilize the expanded sectors published by Zacks, encompassing 16 sectors instead of the standard 11. This provides enhanced granularity in assessing winners and losers. Energy stocks demonstrated notable strength last week, buoyed by surging oil prices. In contrast, defense contractors relinquished some of their recent gains, experiencing a 4.76% decline, while retailers continued their decline, which was initiated in early August.
Equity Group Performance
Categorizing stocks in the S&P 1500 Composite Index by shared characteristics such as growth, value, size, cyclical, defensive, and domestic vs. foreign, the top 7 stocks by market capitalization within the S&P index exhibited relative resilience—conversely, small- and mid-cap stocks featured as the worst-performing groups.
The Dominance of the S&P Top 7
An examination of the seven mega-cap stocks that have led the market throughout the year reveals Apple and NVIDIA experienced a 6% decline last week. At the same time, Microsoft, the strongest performer in this group, gained 1.7%. These seven stocks account for 75% of the total year-to-date gain in the S&P 500, signaling a broadening of market participation compared to two months ago when this figure stood at 82%.
Best and Worst Performing ETFs
Cannabis stocks rallied last week, buoyed by optimism regarding potential regulatory changes. Recreational cannabis use has already been legalized in 23 states, three U.S. territories, and D.C. Conversely, Chinese stocks experienced a 6.9% decline, driven by concerns over the country’s economic slowdown, reduced foreign investment, decreased consumer spending, and housing market instability.
Ten Least Performing Exchange-Traded Funds (ETFs)
Of the Previous Week, Chinese stock markets experienced a significant decline of 6.9% in the preceding week. A report by a reputable news source indicated that the decline was primarily attributed to the drop in the Hang Seng Index, which predominantly consists of companies from China’s mainland. This decline coincides with China’s economic challenges, characterized by a slowdown in growth due to the prolonged impact of strict COVID-19 restrictions over the past three years. Contributing factors to this economic slowdown include reduced levels of foreign investment, decreased consumer expenditure, and increased instability within the housing market.
Best and Worst Performing Stocks
Among the top-performing stocks in the S&P 1500 last week, private equity firm Thoma Bravo’s acquisition of NextGen Healthcare for $1.6 billion stands out. Conversely, Methode Electronics shares declined due to mixed Q1 earnings results and a bleak outlook.
Concluding Remarks
Despite the observable expansion of market participation, the dominance of the S&P top 7 stocks remains intact. These seven mega-cap tech stocks have contributed to 75% of the total year-to-date gain in the S&P 500, albeit down from 82% two months ago.
This trend suggests a broader market involvement. A balanced hypothetical portfolio comprising these seven stocks reflects a year-to-date increase of 93.5% compared to the S&P 500’s 16.1%.
Since the market’s peak on July 31, the S&P 500 and the top 7 cohort have registered a 2.7% decline, indicating that the top 7 stocks are not currently leading the market lower. Instead, we are observing a mild and orderly pullback characterized by broad participation, reflecting a reduction in exposure to various equities rather than a focus on pricier market leaders.
As the ongoing pullback unfolds, close attention will be devoted to the performance of the top 7 stocks as they significantly influence market dynamics.
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