The stock market stumbled again on Wednesday as the September rally struggled to find its next catalyst.
The Dow Jones Industrial Average fell 172 points, or 0.4%. The S&P 500 was down 0.3%. The Nasdaq Composite was down 0.4%.
The yield on the 2-year Treasury note rose to 3.6%. The 10-year yield rose to 4.14%.
It was the first time the big three indexes all fell for a second day in a row on the same day since Sept. 2.
There wasn’t much going on for traders to glom onto, though rising WTI crude oil prices meant the S&P 500’s energy sector was a standout. Tech and communication services continued to pull back.
“The stock market’s sustained push during the traditionally weak seasonal period appears to be fueling ‘bubble’ talk, especially in regard to tech,” writes Daniel Skelly, head of Morgan Stanley’s Wealth Management Market Research & Strategy Team. “While even the strongest rallies inevitably experience retracements, and the market certainly faces ongoing policy and economic uncertainties, there are good reasons to believe this talk is misplaced.”
Skelly notes there have been five bull markets that lasted more than two years over the past 50 years. The average length was eight years, while we’re just under three years into the current bull market that began in October 2022.
The market is in the midst of a normal pullback after it appeared to be short-term extended, Frank Cappelleri, founder of technical analysis firm CappThesis, tells Barron’s. He notes that the S&P’s 14-day relative strength indicator has hit overbought territory for the fourth time since the market’s April lows.
“Each of the prior three times, the ensuing move was a pullback, but those drawdowns have been minimal at best,” Cappelleri says. “That being said, while there’s no sign this time is different, we also have to be careful not to get too complacent, since at some point a bigger decline will be in the cards.”
Cappelleri argues we’ll get a better idea if a bigger decline is in the cards when, and if, the next dip is bought. It will also depend on how the market bounces.
“Buyers have been repeatedly and instantly rewarded with new highs soon after buying prior dips,” Cappelleri says. “If and when that does not happen, and instead a lower high results, that could mark a shift in momentum from the decidedly positive trend of the past five months to something more negative. Those are all a few steps ahead, but it’s a scenario worth watching as the market continues higher.”
Wall Street will get updates on second-quarter gross domestic product growth, durable goods for August, and existing-home sales tomorrow, followed by Friday’s personal consumption expenditures price index for August on Friday.
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