S&P 500: Year-End Rally Elusive, But Some Sectors Could Still Shine
Is an end-of-year rally in the cards?
Historically, this is the typical seasonal trend in the market.
The year has been following this pattern so far. In early 2023, we witnessed seasonal strength, with the Nasdaq surging by over 20% in the first half. Then came the expected third-quarter weakness, which was well within the norm.
Now, we stand at the crucial juncture when stocks should initiate a new rally, at least in theory.
So, are we on the brink of a broader stock market rally now, or could that rally be in specific sectors considering the macroeconomic and geopolitical backdrop?
Let's assess the latest market indicators for a better look at this question.
As we approach the last days of October, the average decline for individual components of the S&P 500 from their July highs is approximately -9.9%.
Many stocks have suffered even more significant declines.
While one out of every five stocks in the index has maintained a bullish trend during this period, 81 stocks have experienced drops of over 20%, and 166 stocks have fallen by a margin between 10% and 20%.
In terms of sectors, the largest average gains are found in the energy sector (NYSE:XLE) with +5.4% (the communications (NYSE:XLC), financial (NYSE:XLF), and tech sectors (NYSE:XLK) also held up relatively well compared to the index).
In fact, the chart below shows the energy sector as the only one where more than a third of the components are up.
Those who thought inflation would go away would no longer bet on this sector but according to the bond market, inflationary pressures are probably only just beginning.
In fact, if we take a look at inflation-adjusted Treasury bonds (TIPs) compared with nominal yields (7-10 years) we will notice new annual highs,
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