US Market Wrap 24 August: Eight of Eleven Sectors Rise Yet the S&P 500 Falls 0.3 Percent

By The Edge Research Team

The S&P 500 fell 0.28 percent to 7,652.86 on Monday even though eight of its eleven sectors finished higher, an outcome that says more about index construction than about the breadth of the session. The exception that mattered was information technology, the heaviest sector in the index, which dropped 1.59 percent to 6,708.32. Industrials and energy also fell, but technology was the dominant drag by weight. CNBC attributed the decline to a sell-off in chip stocks ahead of Nvidia’s earnings this week. Chip names carried the move: Micron fell 5.83 percent, Advanced Micro Devices 3.49 percent, Nvidia itself 2.91 percent and Broadcom 2.63 percent.

A rotation, not a retreat

The divergence across the major indices was unusually wide for a quiet day. The Dow Jones Industrial Average rose 0.26 percent to 53,417.16 while the Nasdaq 100 fell 0.97 percent to 29,023.18, a gap of 1.23 percentage points between the two on our calculation. The Nasdaq Composite lost 0.77 percent to 25,980.19 and the Russell 2000 fell 0.76 percent to 2,995.08.

Underneath, money moved toward defensives and away from growth. Consumer staples led all sectors at 1.76 percent, followed by financials at 1.24 percent, utilities at 1.04 percent and communication services at 1.01 percent. The spread between the best sector and the worst was 3.35 percentage points, again our calculation. Energy fell 0.76 percent alongside a sharp drop in crude, and industrials lost 0.69 percent.

That combination, a heavier Dow, a weaker Nasdaq, staples and utilities bid and technology sold, is the signature of a rotation inside the large-cap complex rather than an indiscriminate exit from equities. Eight sectors advancing while the index declined shows how concentrated the benchmark’s weakness was.

The Treasury curve bull flattened

On the official daily par yield curve the two-year and three-year points did not move, closing unchanged at 4.24 percent and 4.31 percent. The one-year edged up 1 basis point to 4.04 percent. Every maturity from five years onward fell, with the ten-year down 4 basis points to 4.70 percent and both the twenty-year and thirty-year down 4 basis points to 5.21 percent and 5.23 percent. That is a bull flattening from the two-year point outward, and it narrowed the two to ten year spread to 46 basis points from 50, and the two to thirty year spread to 99 basis points from 103, on our calculation. One caveat on reading it as a pure macro signal: we reported on 21 August that the Treasury had increased its buyback of longer-dated debt, which supports the long end independently of any shift in the rate outlook.

Commodities, currencies and volatility

At the 23:20 Kuwait time snapshot crude was sharply lower. Brent’s October contract was down 2.54 percent at 91.99 dollars a barrel and the West Texas Intermediate October contract down 2.39 percent at 84.98 dollars, on a day the United States rolled out a global sanctions plan focused on Iran. Both benchmarks had risen last week when the plan was trailed, and investors may have been taking profit, per CNBC. Gold’s December contract was up 0.64 percent at 4,710.70 dollars an ounce.

The dollar firmed, with the dollar index up 0.20 percent to 98.999, the euro down 0.14 percent to 1.1663 and sterling down 0.10 percent to 1.3627. The VIX rose 4.76 percent to 15.85, its move outpacing every sector in the index, though the absolute level remains low. Bitcoin gained 1.77 percent to 78,727.10 dollars.

United States equities, 24 August closes as displayed by CNBC, ranked by change.

S&P 500 sector indices, 24 August closes as displayed by CNBC, ranked by change.

Official daily par yield curve. United States Department of the Treasury, Daily Treasury Par Yield Curve Rates. Treasury derives the curve from indicative bid-side quotations obtained at or near 3:30 pm each trading day. Changes are our calculation from the two published rows.

Commodities, currencies, volatility and crypto, ranked by change where a percentage applies. Commodity rows are the CNBC most active contract with the delivery month shown; levels captured at 23:20 Kuwait time on 24 August, after the New York equity close. The Kuwaiti dinar row is the CBK official quote for 24 August. The Egyptian pound row is the CBE Exchange Rate for 24 August, which the CBE publishes separately from its Average Client Rate. Neither is a live market quote. Sources: CNBC; Central Bank of Kuwait; Central Bank of Egypt.

Middle East, 24 August official closes, for reference, ranked by change. Levels carried from our Middle East Market Wrap of 24 August. Sources: the Gulf and Egyptian exchanges; The Edge.

Europe, 24 August closes, for reference, ranked by change. Levels carried from our Europe Market Wrap of 24 August. Sources: CNBC; The Edge.

Asia, 24 August closes, for reference, ranked by change. Levels carried from our Asia Market Wrap of 24 August. Sources: CNBC; The Edge.

Why it matters:

A benchmark that falls while most of its components rise is a reminder that the S&P 500 is a weighted index, not a survey of the market. Eight sectors advanced on Monday and the index still lost ground, because the one sector that fell hardest is also the one that carries the most weight. For readers who track the index as a proxy for the American economy, that gap between breadth and level is the thing to watch. The limit of the argument is the Russell 2000, which fell 0.76 percent: Monday was a rotation inside large caps, not evidence of strength across the whole market. The rotation itself is legible. Staples, utilities and financials gained while technology was sold ahead of Nvidia’s results, which makes event positioning a large part of Monday’s move. The bond market agreed rather than contradicted, with the long end rallying and the front end steady, a pattern more consistent with demand for duration than with a change in the rate outlook.

Outlook:

Nvidia’s results this week are the near-term catalyst, and Monday’s chip sell-off was positioning ahead of them rather than a reaction to anything reported. Whether the rotation persists depends on that print. On rates, the two-year and three-year were unchanged on Monday but had each risen 5 basis points on Friday, so the front end is steady rather than anchored; any continuation of the long-end rally would keep flattening the two to thirty year spread from the 99 basis points where it now sits. Crude is the other open question after a fall of more than two percent, with the new United States sanctions programme on Iran still to work through physical flows.

Sources: CNBC for index and sector closes, commodities, currencies, volatility and crypto, and for the session attribution; United States Department of the Treasury for the official daily par yield curve; Central Bank of Kuwait for the official USD/KWD rate; Central Bank of Egypt for the CBE Exchange Rate; The Edge for the Middle East, Europe and Asia reference closes.

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