Kristal Daily Brief - Aug 23

On Monday we saw a continuation of a sharp retreat lower in risk assets. The benchmark S&P 500 index closed -2.1%, while the tech heavy NASDAQ 100 was down -2.6%. This has been the second sharp pull back in a row, and we are starting to test now the short term trend support that has emerged since the middle of July. Consumer discretionary and Technology have been the most impacted sectors.

?European markets were also down, with the German DAX index falling 2.3%. Especially the Auto sector was hit hard, with VW, Porsche and Mercedes all posting sharp declines. What exaggerated the moves in Europe has been a 20% rally in Natural Gas Futures contract for delivery in Europe, exceeding the highs after the beginning of the Russian invasion. There have been 2 catalysts for that move: another ‘scheduled’ shut down of Nordstream 1 pipeline for maintenance next week, and Russian diplomatic comments, that a speedy, diplomatic solution of the Ukraine war is unlikely.

In Fixed Income markets, we have seen a spread widening of around 3bp across the curve in the Investment grade bond space, and 10yr US treasuries have traded 3bps higher to a yield of 3.02%. We have to see if the bears are going to come back for some time on the back of Mr. Powells Jackson Hole speech on Friday, or if this is just a stretch of limbs before they turn around and continue to hibernate.

On the macroeconomic front, in the absence of US data releases the most noteworthy event has been a rate cut by the Peoples Bank of China, cutting their lending and mortgage rates by 5 and 15bp respectively.?

And in other news that we’ve been reading: Bloomberg has done some analysis on the seasonal performance of the last 25 years S&P 500 performance, and historically August and September have been the worst months. (Average -0.7% for September, 11 out of 25 negative). Maybe not enough to draw a signal from it, but certainly worth to keep in mind. However, don’t forget either: Its not so much about timing the market, than rather time in the market!

“Fear incites human action far more urgently than does the impressive weight of historical evidence.” - Jeremy Siegel

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