Trick or treat?

September has a bad reputation as market seasonality suggests that September can often be expected to be a negative month for the markets.

So far, 2023 is living up to expectations as every major asset class other than commodities is in the red.

The question on many investors’ minds is whether this is just normal seasonality or the beginning of a larger bearish trend.

Let’s look at some charts.

We’ll start with bonds because rising rates are the source of much of the current pain.

So far, there is no letup as the Ten-Year has climbed to 4.62%, a new high for the current cycle.

Leadership has been narrowing since April, as the following table shows. On an absolute momentum basis, cash is now king, and it’s not surprising given that 90-day T-Bills currently yield 5.35%.

Looking at the major indexes, the S&P 500 has broken an important support level.

Labels #1 and #2 point out important price levels as determined by volume profile. Those would be natural targets for the current down leg that at least slow the descent.

More troubling is that the equal-weight S&P, which has underperformed the cap-weighted S&P, has recently broken its rising trendline in place since the lows of last October.

The Nasdaq 100 has similar targets.

Small caps have been struggling and have been unable to gather any upside momentum. Now, the level to watch is on the downside at 162. A break of that level would be very bearish.

The all-important FAANGS appear to have put in an important top.

Since these stocks represent over 30% of the market cap weighted S&P 500 and 60% of the Nasdaq 100, their decline will be felt far and wide.

The technology bell weather semiconductor index looks similar.

High-yield bonds, which tend to be more of a “risk” asset, also appear to be rolling over as HYG has recently broken its rising trendline for the October 2022 low.

Looking globally, the MSCI ACWI Index is following a similar pattern and has broken its own rising channel and now looks lower.

Finally, as another sign of how weak the stock market is, currently, there are only three sectors controlled by bullish demand.

The market has provided no real surprise in September as it has followed historical seasonality and shown losses.

But, with interest rates continuing to apply pressure and the charts showing technical damage, investors may need to prepare more for a trick rather than a treat in October.