S&P 500 soars in last 10 minutes of US trading: Market recap

(Bloomberg) — Stocks climbed in the final stretch of a turbulent August as traders braced for what is historically known as the worst month for stocks.

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Despite the tremors that global markets experienced a few weeks ago, the S&P 500 closed just shy of its all-time highs. Stocks surged in the final 10 minutes of trading on Wall Street, with the S&P 500 up 1% and all of its major groups up. The index posted its fourth straight monthly gain amid data showing the economy is holding up, while leaving the door open for a rate cut by the Federal Reserve in September. If a massive cut remains on the cards, next week’s jobs report could provide some clues.

As August draws to a close, sentiment has eased considerably from the beginning of the month, said Nationwide's Mark Hackett. Many concerns about the overall economy have diminished. September could bring some seasonal challenges, but if investors can weather them, those challenges can turn into benefits in the fourth quarter.

Since 1950, the S&P 500 has averaged a 0.7% loss in September and finished up just 43% of the time, making it the worst month for stocks in terms of average return and positivity rate, according to Adam Turnquist LPL Financial. The last four Septembers have also been particularly weak, with the index posting declines of 4.9%, 9.3%, 4.8% and 3.9%, respectively.

Over the course of the month, the index tends to move sideways in the first half of the month, with losses starting to accumulate by month-end, he explained. For this year, the midpoint also coincides with the September Fed meeting.

The S&P 500 index climbed to about 5,650 points ahead of Monday, a U.S. holiday. The Nasdaq 100 gained 1.3%. The Russell 2000 of smaller companies gained 0.7%. Goldman Sachs Group Inc. plans to lay off a few hundred employees in the coming weeks as part of its annual cut of underperforming employees, according to people familiar with the matter. Dell Technologies Inc. rebounded on strong results.

Wall Street is worried that the VIX index could fall to 15. That's after an unprecedented surge that took the index above 65 during the Aug. 5 market selloff. One or more options traders bought VIX call spreads expiring in September, spending more than $9 million to protect against a spike in S&P 500 volatility above 22.

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The yield on 10-year Treasury notes rose five basis points to 3.91%. The dollar gained at the end of its worst month of the year. Speculators turned bearish on the greenback for the first time since February. Oil fell.

Data from Bespoke Investment Group revealed that over the past 100 years, September has also been by far the worst month of the year for the Dow Jones Industrial Average, with an average decline of 1.24%.

An analysis of Citigroup Inc. data since 1928 suggests that the average realized volatility of the S&P 500 for September has historically been 1.5 points higher than August, while October has been an additional 2.5 points higher.

There are several theories as to why September tends to be a weaker month for stocks.

For one thing, investors returning from summer vacations tend to reassess their portfolio positioning defensively. Companies prepare their budgets for the coming year and consider tightening their belts. And mutual funds often engage in window dressing, selling positions at a loss to reduce the amount of their capital gains distributions.

Additionally, companies that enter a stock buyback ban at the end of the third quarter may see their ability to support their stock price affected if it declines, Hackett said.

While seasonality may be reason enough to worry, 2024 is also an election year, Bespoke noted. With this additional potential cause for concern, September performance in election years is once again negative, the firm said.

Since the end of World War II, the Dow has recorded an average decline of 0.58% in September. While this figure is negative, it compares to Septembers in non-election years, when it recorded an even larger decline of 1.37%.

In other words, seasonality tends to be harsh whether it's an election year or not, Bespoke strategists noted.

For now, many traders are pinning their hopes on more data that will show the economy is not collapsing, as inflation continues to creep toward the Fed's 2% target.

A report Friday showed that U.S. consumer sentiment improved for the first time in five months, as slowing inflation and prospects for a Fed rate cut helped boost expectations about personal finances. The core consumer price index, the Fed’s preferred measure of underlying U.S. inflation, rose at a moderate pace.

This week's numbers dispel fears of recession and inflation, said TradeStation's David Russell. Goldilocks could be here as Jerome Powell prepares to turn the page.

Powell said last week that the time had come for the central bank to cut its benchmark rate, affirming expectations that officials will begin reducing borrowing costs next month and making clear his intention to prevent another slowdown in employment.

Like the Fed, investors' focus appears to be shifting from inflation to the labor market, and soon all eyes will be on next Friday's monthly jobs report, said Bret Kenwell at eToro.

Last month’s jobs report was a huge miss, raising widespread concerns that the Fed was too late in cutting rates, he noted. Another big miss could increase speculation of a 50 basis point cut, up from the 25 basis points currently expected.

Swap contracts fully price in a quarter-point move and a roughly 20% chance of the half-point cut expected by at least two major U.S. banks. They continue to almost fully price in a half-point rate cut at some point this year, anticipating a cumulative easing of nearly 100 basis points over the Fed’s last three policy meetings.

Stock markets should again benefit from strong economic data, which is needed for the rally to extend beyond the technology sector, according to strategists at Barclays Plc.

The team led by Emmanuel Cau believes that the monthly US employment data next week will be the barometer to confirm or refute recession fears.

If the numbers are bad, stocks will likely react poorly given where they are after the rebound, they write. On the other hand, a better-than-expected number would help ease near-term recession fears and would likely be good for stocks.

Money market funds saw inflows of about $24.5 billion in the week through Aug. 28, a fourth straight week of additions, according to a note from Bank of America Corp., citing EPFR Global data. About $20.7 billion flowed into bond funds, while $13.7 billion flowed into stocks, the data showed.

U.S. stocks recorded a ninth straight week of additions, to the tune of $5.8 billion.

Company Highlights:

Tesla Inc. aims to unveil its highly anticipated robotaxi at an event at Warner Bros. Discovery Inc.'s movie studio in the Los Angeles area, people familiar with the matter said.

The electric vehicle maker plans to unveil the specially designed robotaxi on Oct. 10 at its facility in Burbank, California, the sources said.

Intel Corp. is working with investment bankers to help it navigate the most difficult period in its 56-year history, according to people familiar with the matter.

The company is exploring various scenarios, including a spinoff of its product design and manufacturing businesses, as well as factory projects that could potentially be scrapped, the people said.

Lululemon Athletica Inc. lowered its sales and profit forecast for the year as increased competition and relentless inflation dampen demand for its pricey yoga pants.

Ulta Beauty Inc. cut its sales forecast as more U.S. consumers cut back on makeup and cosmetics purchases amid rising prices and borrowing costs.

Autodesk Inc. raised its full-year profit forecast following pressure on the software maker from activist investor Starboard Value LP.

Alnylam Pharmaceuticals Inc.'s trial of its drug to treat a deadly form of heart disease has fallen short of investor expectations.

Some of the main movements in the markets:

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The S&P 500 was up 1% as of 4 p.m. New York time.

The Nasdaq 100 gained 1.3%

The Dow Jones Industrial Average rose 0.6%

The MSCI World Index rose 0.8%

The Bloomberg Magnificent 7 Total Return Index rose 1.6%

The Russell 2000 index rose 0.7%

Currencies

The Bloomberg Dollar Spot Index rose 0.1%

The euro fell 0.2% to $1.1055

The pound fell 0.3% to $1.3133

The Japanese yen fell 0.8 percent to 146.15 per dollar.

Cryptocurrencies

Bitcoin fell 1.3% to $58,785.55

Ether fell 1.3% to $2,507.87

Bonds

The yield on 10-year Treasury notes rose five basis points to 3.91%.

Germany's 10-year yield rose two basis points to 2.30%.

Britain's 10-year yield was little changed at 4.02%.

Raw materials

West Texas Intermediate crude oil fell 3% to $73.62 a barrel

Spot gold fell 0.7% to $2,503 an ounce

This story was produced with assistance from Bloomberg Automation.

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