Consensus on September
September 7, 2022
SPX: The S&P 500 (SPX) held technical support at ~3900 yesterday and sits at the lower end of a ~3900-4300 range. Closing levels below 3890 would likely lead to a full retest of the June lows at 3660. Getting through resistance at ~4300 will likely require a shift in macro fundamentals that includes a cyclical recovery and disinflation. Early clues on the evolution of this theme would include cyclical equity sector leadership and simultaneously lower inflation expectations. The Philadelphia Semiconductor Index (SOX Index) is a good cyclical equity proxy and we’re using 10-year TIPS breakeven yields to track inflation expectations.
The herd: Seasonal weakness during the month of September has been the most frequently-cited bearish talking point over the past two weeks. There isn’t much statistical significance to seasonal factors, but September weakness is the closest thing you can find. Lower estimate revisions post-Q2 earnings season are an overlooked fundamental cause for the anomaly as sell-side analysts fine-tune overly optimistic out-year estimates. This year could be different as analysts began revising calendar ’23 estimates in May based on downbeat macro fundamentals and weak equity markets. Calendar ‘23 estimates were revised lower during CQ2 reporting season, but after four months of cuts, there could be a sense that these estimates have been sufficiently de-risked.