September Oversold, October Bounce Expected

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The stock markets had a bad quarter, with all major indexes ending in the red. The Nasdaq Composite was the only index to see a slight increase. Europe’s Stoxx 600 also fell, marking its worst quarterly performance in a year. Euro zone inflation dropped to 4.3%, the lowest level since October 2021. Meanwhile, the personal consumption expenditure (PCE) index for August showed a 0.4% increase for the month and a 3.5% increase from a year ago. However, when excluding food and energy, core PCE only increased by 0.1%, the smallest monthly increase since November 2020.

The U.S. Senate narrowly avoided a government shutdown by passing a last-minute spending bill, allowing the government to stay open for 45 more days. However, the bill did not include new funding for Ukraine’s ongoing war with Russia. The United Auto Workers union expanded its strikes, with an additional 6,900 autoworkers joining those already on strike. However, Stellantis was spared from further strikes due to progress in negotiations with the union. The upcoming week will focus on the labor market, with the Job Openings and Labor Turnover Survey for August and the September jobs report being released.

Despite a lower-than-expected core PCE reading, the stock markets mostly fell, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all closing in the red for September. September’s performance was particularly poor, with the S&P and Nasdaq experiencing their worst monthly performance since December. The Dow also had its worst showing since February. On a quarterly basis, the numbers were slightly better, but still indicated the negative impact of September on stocks. Analysts have noted that stocks are currently in a deeply oversold condition, with a low percentage of stocks trading above their 50-day moving average and the relative strength index of the S&P reaching its lowest level in 12 months. However, being oversold may present an opportunity for investors as stocks become relatively cheap and there is historically a positive trend in October for stocks.

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