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“The future ain’t what it used to be.” – Yogi Berra

Morning stock market summary

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It’s a positive morning for futures as investors look to regroup following the post-Fed declines since Wednesday.  Treasury yields are lower, but crude oil is back above $90 per barrel.

A lot of index and sector charts started to show signs of breaking down (on a short-term basis at least) yesterday, and the small cap Russell 2000 moved into ‘correction’ territory as it is now down over 10% from its summer high.  The Nasdaq still has a bit over 2% to go before it reaches correction territory, and the S&P 500 is only just over halfway there.

At the sector level, Real Estate and Utilities are the only two sectors down over 10%, but both sectors are down from highs that occurred very early in the year.  The only three other sectors that hit their YTD highs before Memorial Day are Financials, Consumer Staples, and Energy.  Behind Real Estate and Utilities, Technology is less than half of a percent from correction territory, and the only three sectors that are less than 5% from their highs are Energy, Communication Services, and Health Care.

Heading into the final week of the month, the good news and the bad news are the same – there’s a week left in September.  First, the bad news.  September has historically been a weak month, and with respect to the four-year presidential cycle, year three is the only time Q3 has been negative.  Lastly, the final two weeks of September is the second worst two-week period of the year (behind the two weeks following the close on 2/21), so there’s still another week left of that stretch.  With all these weak seasonal tendencies, if Yogi Berra was still around, he may have said, you can understand why investors don’t want to step up and buy anything, and nobody’s going to stop them.

Now, the good news. There’s only a week left in September and that means Q4 is just over a week away.  With respect to seasonality, Q4 has historically been a strong time of year and even stronger in year three of the presidential election cycle.  Not only that but when it comes to rolling two-week returns, there is only one day in Q4 when the S&P 500’s average forward two-week return is negative.  When it comes to seasonality, the last two weeks have followed the script very closely, now bulls hope that continues to be the case.

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