In this weekly analysis, we scrutinize the various asset classes, industries, equity categories, and exchange-traded funds (ETFs) that propelled the market higher and the market segments that defied the trend by declining.

Monitoring the frontrunners and stragglers allows us to comprehend the direction of significant financial flows and their origin. Indications of widening market involvement are persistently manifesting in the statistics. As this pattern persists, the robustness of the market surge will steadily enhance.

The S&P 500 had a good week.

For the week, the S&P 500 was up 2.5%. We are now just 1.6% below the 2023 high water mark, set on July 31. The market is still in the process of digesting its gains and broadening its participation.

A look at monthly returns.

This chart shows the monthly returns for the past year. The August decline of 1.8% was relatively mild. September is off to a positive start, but history shows that September is the weakest month of the year, on average.

The bull market moves back above the trend line.

This chart highlights the 26.2% gain in the S&P 500 from the October 2022 low through Friday’s close. The index is now 6.2% below its record high close on January 3, 2022.

The Golden Cross.

The market entered a Golden Cross configuration (a Golden Cross occurs when the 50 day moving average crosses above the 200 day) on February 2, 2023. 

The spread between these two moving averages is wide. Today it stands at 7.5%, more than three times as wide as the long term average of 2.3%. This wide spread is one of the reasons I’m expecting the current pullback to continue. 

Major asset class performance.

Here is a look at the performance of the major asset classes, sorted by last week’s returns. I also included the year-to-date returns as well as the returns since the October 12, 2022 low for additional context.

The best performer last week was Blockchain, powered by strong up moves in MicroStrategy (MSTR) and Coinbase (COIN). 

The worst performing asset class last week was Volatility. After a two week rally, investors are less inclined to hedge with put options.

Equity sector performance

For this report I use the expanded sectors as published by Zacks. They use 16 sectors rather than the standard 11. This gives us added granularity as we survey the winners and losers.

Construction stocks led the way higher last week, followed by Technology and Retail. Construction is also leading all sectors on a YTD basis.

Utilities came in last place for the week and YTD. 

Equity group performance

For the groups, I separate the stocks in the S&P 1500 Composite Index by shared characteristics like growth, value, size, cyclical, defensive, and domestic vs. foreign.

The S&P Top 7 stocks by market cap led the way higher, inspired by big moves in Apple and Nvidia.

The worst performing group was Defensive Stocks, as investors opted for more Cyclical names instead.

The S&P Top 7

Here is a look at the seven mega-cap stocks that have been leading the market all year. Apple was up 6.1% for the week. Microsoft, the weakest of the group, gained 1.8%. 

These seven stocks account for 74% of the total YTD gain in the S&P 500. That’s down from 82% just two months ago, providing evidence that participation in the bull market is broadening out. 

The 10 best performing ETFs from last week

Cannabis stocks rallied last week on news of less stringent regulation. Morningstar had this to say, “On Aug. 30, shares of the U.S. cannabis multistate operators rallied around 20%, with Canadian licensed producers up less, following news that the U.S. Department of Health and Human Services recommended to the Drug Enforcement Administration that it reclassify cannabis to a Schedule III drug from Schedule I.”

The 10 worst performing ETFs from last week

The Bitcoin Strategy ETF dipped 1.3% last week as the crypto market continues to digest its YTD gains. This fund does not invest directly in bitcoin, instead seeking to provide capital appreciation primarily through managed exposure to bitcoin futures contracts. Bitcoin itself is up 55% YTD. 

The 10 best performing stocks from last week

Here are the 10 best performing stocks in the S&P 1500 last week.

Hersha Hospitality received a buyout offer that was 60% above its market price.

The 10 worst performing stocks from last week

Here are the 10 worst performing stocks in the S&P 1500 last week. 

Cara Therapeutics continued its slide after missing its earnings target in early August.

Final thoughts

September has arrived, bringing with it a reputation as the worst month of the year for equity returns. This chart from Yardeni Research shows the average returns for each month, going back to 1928.

This September has the potential to log a negative return, as the market faces several challenges. Valuations are stretched. Rates are high. And the unemployment rate for August came in at 3.8%, up significantly from July and the highest since February 2022.

A recession remains a distinct possibility, especially if the Fed keeps rates high for longer than necessary to achieve their stated goal of 2% inflation. For now, investors are pricing in a soft landing (no recession) or a “softish” landing (a mild and brief recession).

However, if economic reports begin to turn more negative – a sharp decline in consumer spending, for example – investors may begin to anticipate a deeper and longer lasting recession. In this scenario, September 2023 could be the weakest month of the year.