US Stocks Start September's First Week on a Poor Note: What Can We Expect for the Future?

Last week (9/4-9/8), global stock markets mostly experienced a decline. In the US, the S&P 500 index fell by 1.29%, the Dow Jones Industrial Average dropped by 0.75%, and the Nasdaq 100 index declined by 1.36%. As for European stocks, the STOXX 600 index decreased by 0.76%.

【Source: MacroMicro；Date2023/9/4-2023/9/8】

【Source: MacroMicro；Date2023/1/1-2023/9/8】

On September 6, data showed that the US non-manufacturing (services) sector exceeded expectations in August, reaching 54.5, marking a six-month high. Sub-indices for hiring and orders saw significant rebounds, while input costs also accelerated their rise.

The outperformance of the non-manufacturing sector, which is the largest component of the US economy, highlights strong consumer demand and overall economic resilience.

【Source：MacroMicro 】

Furthermore, data released by the US Department of Labor on Thursday revealed that initial jobless claims for the week ending September 2 dropped to 216,000, the lowest since February and below market expectations.

These two sets of data indicate the resilience of the labor market, further reinforcing market expectations of tightening by the Federal Reserve. According to CME Group's FedWatch tool, the probability of a rate hike at the Fed's November meeting has risen to over 40%, and the projected timeline for interest rate cuts next year has been pushed back from May to June.

【Source：CME】

Mitrade Analyst：

The strong performance of the service sector makes it difficult for inflation to decline in the coming months, and the Federal Reserve is likely to adopt a hawkish stance at the September rate hike meeting. However, as long as the dot plot is not revised upward, it can be determined that there will be at most one more rate hike this year. The future market focus will gradually shift to how long high interest rates will persist and when a rate cut may occur.

On September 5th, Saudi Arabia and Russia agreed to extend the voluntary production cuts until the end of December this year. Saudi Arabia voluntarily reduced production by 1 million barrels per day, while Russia reduced production by 300,000 barrels per day. This extension led to a surge in oil prices to over $90 per barrel, the first time since November last year. Brent crude oil has risen by about 20% since July 1st.

Driven by higher oil prices, the US energy sector has also achieved favorable returns. The S&P Energy Select Sector Index has risen over 12% this quarter and over 3% this month, outperforming the overall market. Leading companies like ExxonMobil (XOM) and Chevron (CVX) have seen nearly a 4% increase this month.

【Source：S&P Global；Energy Select Sector Index】

Goldman Sachs' commodity research department predicts that the extension of voluntary production cuts by Saudi Arabia and Russia could push Brent crude oil futures prices to $107 per barrel by the end of 2024.

However, there is a key uncertainty surrounding oil prices, which is whether the US economy will enter a recession. TSVETANA PARASKOVA, a contributor to Oilprice.com, suggests that considering the ongoing economic and oil demand concerns, it may not be enough to support oil prices at $100 per barrel.

Mitrade Analyst：

Although energy stocks have already experienced a rally, their current price-to-earnings (PE) ratio is around 12, which is not considered too high. Investors can consider allocating their investments appropriately.

Furthermore, the inevitable rise in crude oil prices will exacerbate inflationary pressures and strengthen expectations of tightening. The August Consumer Price Index (CPI) data, to be released this week, will be the most closely watched data before the Federal Reserve's September interest rate meeting. Due to the surge in gasoline prices, US inflation in August may experience a rebound.

Last week, the Nasdaq 100 index fell by 1.36%, primarily due to rising expectations of interest rate hikes and significant declines in the stock prices of Apple and NVIDIA, which acted as major drag factors.

Apple (AAPL) dropped nearly 6% for the week, mainly driven by bearish news, including the EU's "Digital Markets Act," China's ban, and the threat posed by Huawei Mate60 Pro.

NVIDIA (NVDA) experienced a cumulative decline of approximately 6.1%, fueled by conspiracy theories surrounding financial fraud allegations in its earnings report, which heightened fears and concerns about an AI bubble. Overall, chip stocks declined, with the Philadelphia Semiconductor Index falling around 3% last week.

According to EPFR data, there was a net outflow of $1.7 billion from technology stocks in the week ending September 6th, marking the first sell-off in 11 weeks. This may suggest that the hype around AI is subsiding.

【Source：MacroMicro； Nasdaq 100 PE】

Mitrade Analyst：

Since the beginning of this year, the Nasdaq 100 Index has risen nearly 40%, and the increasing valuation is making the market more sensitive to negative factors. This week, the focus will be on the US August inflation data and Apple's product launch event. If the situation turns out better than expected, there is a possibility of a slight rebound in the Nasdaq 100. However, we anticipate cautious market conditions leading up to the Federal Reserve interest rate meeting, with a higher probability of index volatility.