S&P 500 Facing a ‘Bumpy Ride,’ But the Outlook Remains Positive: BTIG

Market Update: S&P 500 Shows Strength Despite Seasonal Weakness

Contrary to expectations, the anticipated false breakout in the S&P 500 following the recent FOMC rate cut did not occur.

Looking ahead, analysts from investment bank BTIG predict that while the benchmark index may face some volatility, the overall trajectory should be upward.

Although the market is currently experiencing a typically weak seasonal period, BTIG strategists emphasize the significance of recent highs in both the S&P 500 and the equal-weighted index. The cumulative advance-decline line continues to rise ahead of price, which, while not dismissing potential short-term declines, generally reflects positively for the medium-term outlook.

Analysts recognize that the market is still within its most challenging seasonal stretch of the year but anticipate that any weakness leading into October will be short-lived as seasonality begins to improve by mid-month.

Additionally, BTIG has noted a bullish trend in high beta stocks compared to low volatility stocks; the former has staged a comeback and is currently testing important resistance levels. Clearing this resistance could further enhance the bullish sentiment.

Sector analysis reveals that semiconductors are experiencing lower highs in both absolute and relative terms, while the software sector has successfully broken out of a seven-month consolidation phase.

The strategists advise caution regarding consumer staples and suggest reducing positions in energy following a recent tactical bounce. They also recommend taking profits on gold, which has seen significant gains but is approaching a traditionally weak season, likely leading to short-term declines through October.

Historically, September has been the most challenging month for gold, with declines occurring in 10 of the last 12 years. In the two years that recorded gains in September, the following October saw nearly a 3% drop each time.

Lastly, BTIG highlights that cyclical stocks have reached new highs, with several companies, including Caterpillar, DuPont, Stanley Black & Decker, and Eastman Chemical, showing robust performance on their charts.