September to Remember

In our first vlog for the month of September, we highlighted the volatility that has been historically seen in the month of September. We said this year might be a September to remember and it lived up to its tough reputation as the S&P 500 Index fell 4.8% in September making it the worst September in the last 10 years for the market. This was the worst month all together since March of 2020. The S&P 500 is officially down 5% from the recent highs. This was the first 5% pullback we’ve had in about a year. We also watched as the NASDAQ lost over 5% due to the higher 10-year treasury yield. However, we think that some seasonal weakness is perfectly normal. As we head into October and the fourth quarter of this year, we are optimistic from a historical perspective. As always, no guarantees, but, as you can see in the chart shown in the video for this episode, since 1950, the S&P 500 Index has been up 78.9% of the time in the fourth quarter and up 4%, on average, the best of all quarters. October is historically volatile but the fourth quarter, overall, has seen strength. The question for October will be how resilient the market will be with the continued uncertainty of news coming out of Washington D.C. and the uncertainty around the supply chain constraints.

Earnings Season Volatility

Earnings have been driving this market higher. As they say, it’s been climbing a wall of worry, but earnings have been very strong. Something we’re looking at closely is third-quarter earnings as it begins to be reported. Will that be positive or negative for the market? With so much volatility, we think earnings may drive continued volatility. On the chart shown in the video for this episode, you can see that the next 12 months’ earnings expectations have really been on an upward trend since they bottomed back in 2020. That trend seems to be kind of turning over. What may be driving that turnover and expectations of earnings growth, is potentially supply chain issues. On another chart in the video, you can see that the year-over-year cost for S&P 500 companies are up almost 10% and rising. Another chart in the video shows that the mention of the word “shortages” in transcripts, is at an all-time high. You can see that it has really spiked over the last few months. All that is driving is uncertainty around how companies are going to react to shortages. We are seeing prices go higher, however, higher prices may hurt one company but on the other hand, it may help another. So far, we’ve only had 16 companies report earnings which isn’t a statistically significant number. What the markets reacted to those earnings is interesting. Out of the 16, 12 of them have caused the market to move up or down 3% on their earnings news. Out of the 16, six of them moved up 3% or more and the other six of the 16 moved down 3% or more. I think that may be what we see going into the fourth quarter with earnings season. As companies report, we’re going to see a lot of reaction because the market really hasn’t priced in how the shortages impact the good of some companies and into the bad others and their bottom line. This market seems to be a little bit surprised by the numbers that we’ve been talking about for months here on our vlogs. We’ve talked about supply chain bottlenecks, commodity prices going up, etc and we’re shocked to see the market react as it is. Take what we will from the data, but we think that we’re going to have some volatility in earnings season. It may not necessarily be bad, again we could see spikes to the high side as companies report better than expected profits because they increased their costs. It’s something to watch very closely as we get into earnings season.

Technical Analysis

Friday, the S&P 500 closed at a price of 4,357 which gives us a new resistance level of 4,390 and a new support level of 4,330. We did have a shaky September but despite that, the 100-day moving average, which is more of an intermediate-term price, is at a price of 4,346. Looking at it from a future standpoint, it doesn’t look as bad as it does on the surface and as bad as it did for the month of September alone. With Earnings season coming up, it’s going to be important to look at these resistance and support levels for the end of the year. We will start to give some of the longer-term resistance levels in our upcoming vlogs.

 

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®, BFA
Vice President
Wealth Consultant
Email Adam Vansant here

Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

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