Large-cap growth drives SPX lower in August, nervous investors await data (NYSEARCA:IWF)

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It’s the summer of volatility. The S&P 500 bottomed out on June 16, then staged a nearly 20% rally back to its 200 day moving average Two months later. Since then, however, stocks have suffered significant losses as investors grapple with a The Federal Reserve does not attack inflation. It’s a no-holds-barred match against rising consumer prices for the Fed as we head to the bottom. notoriously volatile month of September.

S&P 500 falls below its 50-day moving average after 200-day rejection

S&P 500 falls below its 50-day moving average after 200-day rejection

Stockcharts.com

In total, the S&P 500 ETF (SPY) lost 4.1% in August while small caps, as measured by the iShares Russell 2000 ETF (IWM), managed to outperform, falling 2%. Shares ended Wednesday at monthly lows.

No safety was found in the fixed income market as Treasury rates rose sharply and corporate credit spreads widened. The iShares Aggregate Bond ETF (AGG) was down 3% (including dividends).

An ongoing energy crisis in Europe, currency issues in Japan and continued uncertainty in China have all contributed to the Vanguard FTSE All-World Ex-US (VEU) ETF lose ground to domestic equities with a fall of 4.4% in August.

Large-cap tech drives stocks lower in second half of August

Large-cap tech drives stocks lower in second half of August

Stockcharts.com

Where was one of the worst extended areas to position in the past two-plus weeks? Large cap growth names, which have significantly underperformed small caps and value stocks. The iShares Russell 1000 Growth ETF (NYSEARCA:IWF) ended the month with four consecutive daily declines. Technology-dominated and discretionary companies, often seen as high-duration assets, fell out of bed last Friday following Chairman Powell’s “painful” message to Wall Street.

Technically, the IWF daily chart is in a head and shoulders downtrend with a price target of $229, which it almost touched on Wednesday. Investors should watch large cap growth as we head into the final months of the year. Some of this year’s strong stocks are now under attack from the bears.

Large cap growth: support for late June/early July highs

Large cap growth: support for late June/early July highs

Stockcharts.com

August began with optimism and ended with fear. The volatility index managed to dip below 20 for the first time since April mid-month when the S&P 500 briefly broke above its 200-day moving average. Fear quickly set in and the VIX hit its highest level in more than a month earlier this week.

S&P 500 volatility improves as September approaches

S&P 500 volatility improves as September approaches

Stockcharts.com

The last half of the month had all the hallmarks of the turbulence seen in the first half of 2022. Along with soaring “theft”, the US dollar index hit new 20-year highs and the sector energy picked up an offer. Stocks in oil and gas fields generally moved inversely to what the greenback did, but now that the United States has become a major energy producer, given the shale revolution, the rise energy prices is not so bad. In fact, according to a forecast released by Goldman Sachs Investment Research, the energy sector is expected to make up the entire S&P 500. 8% earnings growth rate in 2022.

S&P 500 2022 Earnings Growth: All Energy

S&P 500 2022 Earnings Growth: All Energy

Goldman Sachs Investment Research

There’s great news for US consumers on the energy front – wholesale gasoline prices have fallen to their lowest level since January as the RBOB moves to the October contract for fuel blending. ‘winter.

Gasoline futures suggest much lower pump prices

Gasoline futures suggest much lower pump prices

TradingView

However, there is no way to put a positive spin on the energy situation across the pond. On my list of “charts of the year” there is one posted on Wednesday by Holger Zschaepitz. One-year German power futures got ballistic earlier this week but then crashed into what consumers hope will turn out to be a bearish top. Along with how US large-cap growth stocks trade, European natural gas and power market prices will certainly drive risk/risk aversion behavior in September.

Electricity prices in Germany go parabolic, then plummet

Electricity prices in Germany go parabolic, then plummet

Bloomberg

In the future we will know more about the state of the economy after Thursday’s key ISM manufacturing figure and Friday’s all-important August jobs report (including crucial payroll data). The next CPI print is coming September 13.

The essential

August once again reminded us how quickly the narrative can shift. The first half of the month was a great time for the bulls as it appeared that corporate earnings and economic data were turning the direction of the Fed. Robust job growth in the middle of cooling consumer price seemed like a golden loop scenario, increasing the chances of a soft landing. Unfortunately, a hawkish speech from Jackson Hole by Jay Powell reignited fears that interest rates may need to be “higher for longer” to whip inflation.

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