Daily Brief - Was 5,717 the peak?

TLDR: Labor Day proved the pivotal point for the switch from Summer rally to Fall drop (see what we did there). Will it also enter history as the end of the bull market?

Last week we titled the Daily Brief Sell on Labor Day, and the prediction proved correct - traders came in at the top of the market and said “nah mate, I’m out”.

What next?

Well for one we can keep a core piece of information in our pockets: there’s a solid chance that ~5,700 is the ceiling of the market for this cycle.

In two weeks time we have the Fed come out with its first rate cut, which the market is likely to read as a bearish sign as in: the economy is weak, so we need to cut.

But giving up on the market might be premature. The EPS of S&P 500 are doing quite fine, and one should not throw the towel yet on the market’s last hooray.

That is probably our best case: range-bound markets for another quarter, then 2025 brings a well deserved bear to clear out the house for the next cycle.

How to trade it

For allocators, long treasuries. It’s as simple as that.

For traders, we hope you profited from the leg down in the market. It might be good to position for the next FOMC: if the market sells hard into it, it will be a relief rally after.

Market Movers: Sectors response to a rate cut

Here are the historically best and worst performing US sectors on 1-month horizon, following a rate cut by the Federal Reserve:

Top 3:

1. S&P Technology: 1.74%
2. S&P Telecom: 1.06%
3. S&P Materials: 0.65%

Bottom 3:

1. S&P Financials: -1.49%
2. S&P Utilities: -1.42%
3. S&P Real Estate: -0.62%

Earnings Spotlight: Rising Deliveries, Lingering Losses

Across the pond, Nio, the Chinese electric vehicle manufacturer, is set to release its Q2 Fiscal 2024 earnings on September 5. Analysts expect sales to reach $2.45 billion, a 96% increase year-over-year, with a narrower loss of $0.31 per share, compared to $0.46 last year.

Despite this sales growth, Nio's stock has dropped 55% year-to-date, reflecting market saturation, competition, and missed earnings estimates in six of the last nine quarters. However, Nio’s delivery numbers are improving, with 20,176 vehicles delivered in August and a forecast of 54,000-56,000 units for Q2, driven by model upgrades.

Challenges remain with persistent losses, declining revenue, and a 21% EU tariff impacting prices.