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The past week was full of false breakouts and aborted crashes, which ultimately made a lot of noise without providing much information.
ANGELA WEIS/AFP/Getty Images
August lives up to its reputation as a tough month for stocks – but it could also be the next source of opportunity for investors.
It’s been a yawn for a week – as long as you don’t look at me
NASDAQ Composite.
the
S&P 500 index
It fell 0.3% while
Dow Jones Industrial Average
They posted a 0.6% gain, but are hiding the volatility below the surface that was clearly visible in the tech-heavy Nasdaq, which fell 1.9%. It’s now down about 4.9% in August.
There was plenty to worry about, including bank credit cuts by Moody’s and a possible path to higher interest rates by the Federal Reserve in light of consumer and producer inflation readings which clearly show that the easy part of inflation is over. Besides, the market was bullish, led by just seven stocks, incl
apple
(Stock ticker: AAPL),
Microsoft
(MSFT) f
nvidia
(NVDA), it can’t go on forever.
“(It’s) an appropriate pause for the market,” said David Donabedian, chief investment officer at CIBC Private Wealth US. barons, Notable with the rally led by a few tech names earlier this year. “We are now seeing a healthy market.”
If it is an intermittent one. The past week was full of false breakouts and aborted crashes, which ultimately made a lot of noise without providing much information, especially with the low volume in August. But it was required if the stock market was able to continue to rise. “A lot of people are in wait-and-see mode,” says Frank Cappeleri, CappThesis founder and market technician. “This was necessary to see more constructive bullish patterns.”
It may take some time to get to that point, and investors should use this holding pattern as an opportunity to do some trimming from stocks that have risen while adding to sectors that were less popular. Health care and facilities come to mind. while the
SPDR technology sector selection
Exchange-traded funds (XLK) have gained 34% this year, and
SPDR Healthcare Sector Selection
ETF (XLV) is nearly flat, and
Utilities select sector SPDR
ETF (XLU) is down 8.4%.
These sectors can come in handy if the unexpected happens. Although many on Wall Street dismiss the possibility of a recession, it is still a good time to exercise some caution. After all, the Fed has raised rates by 5.5 percentage points since March 2022, and the effects of those increases take time for the market to feel. The yield curve, a reliable predictor of recessions, remains deeply inverted. While the “R” is intimidating, it also brings opportunity. “Recession is an ominous term, but it usually sets the stage for a permanent multi-year bull market,” says Donabedian.
If we aren’t in one already.
write to Carleton English at carleton.english@dowjones.com
