Stock Market Recovers After Tough Week Despite Apple's Lackluster Unveiling

Stock Market Bounces Back

Following the worst week for the S&P since the March 2023 banking crisis, the stock market saw a significant bounce back. This recovery came after the Nasdaq hit one of its most oversold levels since the COVID-19 crash. The recovery was almost inevitable, and all sectors saw a substantial rise, with the exception of a few.

Performance of Tech Stocks

While some tech companies, such as Palantir and Dell, enjoyed the day's session, others were not as fortunate. Palantir and Dell, for instance, were informed that they would be added to the S&P500 index, leading to Dell's best one-day gain since February. Nvidia also managed a rebound from the critical $100 level.

However, Google parent Alphabet saw a decrease of 3%, marking a drop on 4 of the past 5 days, 7 of the past 9, and a decisive breach below its 200-day moving average. Similarly, Apple failed to capitalize on the unveiling of the iPhone 16, which was largely viewed as a disappointment, causing the stock to hit session lows before recovering.

Implications for the Market

The 'Mag 7' generals that have led the market for the past two days are beginning to wobble, putting the critical support below the Mag 7 index at risk. If the key support line fails, then the 100-day moving average, then the 200-day moving average are next, potentially leading to a significant downturn.

On a positive note, Goldman Prime Broker data shows that overall long/short net and gross exposures are moderate, based on a 3-year look-back. Hedge funds and mutual funds have reduced exposure to Info Tech, maintaining their lowest tilts to the sector in the past decade. This suggests that positioning is not yet a significant issue.

Challenges Ahead

However, there are several factors that could become headwinds for stocks. Systematic buying is now reversing, and the massive buyback bid that kickstarted the August rebound enters its blackout period next Friday. Additionally, demand from the systematic trading community has diminished, and corporate buybacks are tapering off, reducing a key support for the market. Household investment activity, another crucial market support, is also slowing down, raising concerns for continued upward momentum.

Moreover, the annual earnings growth for the Mag 7, while still at impressive levels, is set for a long, painful convergence with the rest of the S&P500.

Gold Maintains Its Appeal

Despite the fluctuations in the rest of the market, gold has managed to maintain its appeal. After a significant drop on Friday following comments interpreted as hawkish, gold rebounded and has managed to recover most of its losses, trading just shy of its all-time highs.

Bottom Line

While the stock market has bounced back after a tough week, the road ahead still presents several challenges. The performance of tech stocks, the potential risk to the Mag 7 index, and the tapering off of corporate buybacks are all factors that could impact the market's trajectory. On the other hand, gold continues to hold its ground, demonstrating its resilience amidst market fluctuations. What are your thoughts on these developments? Feel free to share this article with your friends and discuss it further. Don't forget to sign up for the Daily Briefing, available every day at 6pm.