Equities near their all-time highs are doing nothing to ease BTIG’s sense of short-term foreboding. Despite September and October usually proving tough months for stocks, the market this year has managed to pull off a stunning upset. The three major indexes all ended September higher and are tracking for a gain in October as well. The Dow Jones Industrial Average is trading about 1.6% higher on the month, the S & P 500 by 1.7% and the Nasdaq Composite by more than 2.2%. But the market has now found itself in a dangerous position, according to BTIG. Since stocks did not experience their normal seasonal weakness, they are now overdue for a correction, chief market technician Jonathan Krinsky wrote in a Monday note. “At this point, we have to assume that the recent strength has borrowed from what is typically a post-election rally. That creates a very poor risk/reward here,” Krinsky said. “We either get the typical pre-election jitters, which means the next two weeks could get quite volatile, or we see a classic ‘sell the news’ [market] after the election. The odds of a smooth glide higher over the next 2-4 weeks are quite low.” Indeed, stocks already appear to be reflecting Krinsky’s viewpoint this week. The market sold off on Monday as investors pulled back expectations of an interest rate reduction in December. While stocks mostly bounced back from early losses Tuesday, many investors are of the view that the bull rally is likely to be tested heading into the U.S. presidential election. In a Tuesday note, Wells Fargo analyst Christopher Harvey wrote that “the election is setting up for a ‘sell-the-news’ reaction regardless of outcome.” “The equity run up-into the election is at odds with recent history, and in our view is creating an unattractive near-term risk/reward,” Harvey elaborated. Barclays echoed BTIG’s view, changing what had been an overweight recommendation on global risk assets the past few weeks. “While our macro outlook remains positive, we now recommend moving to the sidelines,” Barclays wrote in a recent note to clients. “We think investors are likely to as well; the risk rally should stall for the next few weeks.” .SPX mountain 2024-08-30 S & P 500 since the end of August.
