US stocks ended lower on Thursday, with all benchmarks down, led by the small/mid-cap Russell 2000. Revised GDP economic data pointed to a strong US economy with growth running at the strongest pace in two years. This print pushes back on the Fed easing narrative, with some, such as Citadel’s Ken Griffin, now only seeing one more cut by December. Europe told Russia that it is ready to commence shooting down any military jets that encroach on Nato territory. Bond yields rose sharply at the short end of the curve but were more contained beyond 10 years. The US dollar rebounded strongly, pushing higher against the major currencies. Gold held recent ground, shrugging off the dollar rebound, while the PGMs surged. Correction risks remain elevated as October approaches.
The S&P 500 fell -0.5% to close at 6,604, while the Nasdaq Composite also dropped -0.5%. The Dow Jones fell -0.38% with the Russell 2000 having the biggest decline, with a drop of -1%. The economic data that has come out over the last day or two has confused investors and clouds the outlook that the Fed will ease aggressively into year-end. Valuations, meanwhile, are stretched with the SPX moving to the top end of the historical forward PE band near 23/24X, with sequentially little room for disappointment priced into the US stock market. A correction has proven elusive MTD in September, but October might see a warranted selloff that would be healthy for stocks.
The Russell 2000 has not been able to sustain the recent breakout above the historical highs and has corrected lower by close to 8% over the past week. The correction could have further to run, with the next support cluster defined near 2,320. The recent rotation out of small/mid-cap stocks points to weakening market internals. For now, the major benchmarks have held up, but correction risks are elevated heading into October in my view.
Carpe Diem
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