The S&P 500 (SP500) on Friday retreated 2.53% for the week to close at 4,117.37 points, posting losses in four out of five sessions. Its accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) slipped 2.50% for the week.
The benchmark gauge’s slide this week has resulted in it slipping into correction territory, with Friday’s closing price marking a more than 10% drop from the S&P’s (SP500) 52-week closing high of 4,588.96 points notched on July 31. The negative milestone comes just two days after the Nasdaq Composite (COMP.IND) also entered correction territory.
The main driver of Wall Street’s retreat this week was a slide in megacap technology stocks, especially the “Magnificent 7” club. All members, except for Amazon (AMZN) and Microsoft (MSFT), notched weekly losses, with Netflix (NFLX) down 0.8%, Nvidia (NVDA) down 2.1%, Apple (AAPL) down 2.7%, Meta Platforms (META) down 3.9% and Alphabet (GOOG) (GOOGL) down about 10%.
Google-parent Alphabet (GOOG) (GOOGL) delivered solid quarterly growth in its core search business, however investors were disappointed with its cloud performance. Meanwhile, Facebook-owner Meta (META) provided cautious forward-looking commentary, noting that the volatility in the macro environment could have a big impact on the advertising market next year.
The “Magnificent 7” comprises nearly 30% of the S&P 500’s (SP500) market cap and an advance in that club has been one of the primary drivers for the benchmark index’s rally in 2023.
Microsoft (MSFT) and Amazon (AMZN) were the two bright spots this week. The former impressed investors with its quarterly Azure cloud results, while the latter smashed profit expectations and reassured investors of a strong future in cloud computing and generative artificial intelligence.
Keith Lerner, co-chief investment officer at Truist, said that this week’s market pullback was an opportunity to add for those investors underweight equities.
“Within the context of our expectations for a continued choppy backdrop, we are incrementally more positive. Several of the factors we have been looking for…are falling into place and skewing the weight of the evidence in a more favorable direction,” Lerner said in a research note on Friday.
“The percentage of stocks trading above their 200-day moving average, an indicator that helps decipher how many stocks are in a positive trend, is down to just 26.8%. Below 20% is considered oversold or stretched to the downside. This is an indication of indiscriminate selling. Further, toward the latter stages of a corrective phase, the leaders succumb to the broader market weakness. More recently, we have seen the Magnificent 7 (Mag 7), a name for several dominant growth stocks, which have been market leaders, come under pressure. These seven stocks are down an average of 17% from their 52-week highs.” Lerner added.
Though the third quarter earnings season dominated headlines this week, traders also parsed economic data and continued to keep an eye on the ongoing conflict between Israel and Islamist group Hamas.
Notable releases in this week’s economic calendar included a significantly higher-than-expected surge in September new home sales, a U.S. Q3 GDP estimate which showed that the economy grew at its fastest pace since the fourth quarter of 2021, and a 0.3% M/M rise in the core personal consumption expenditures price index – the Federal Reserve’s preferred inflation gauge – in September, its highest reading since May.
Speaking of the Fed, all eyes will be on the central bank’s monetary policy meeting and rate decision next week.
Turning to the weekly performance of the S&P 500 (SP500) sectors, ten of the 11 ended in the red. Defensive name Utilities was the only gainer. The losers were led by outsized declines of more than 6% and 5% in Energy and Communication Services, respectively. Technology shed nearly 2%. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from October 20 close to October 27 close:
#1: Utilities +1.24%, and the Utilities Select Sector SPDR ETF (XLU) +1.21%.
#2: Materials -0.45%, and the Materials Select Sector SPDR ETF (XLB) -0.46%.
#3: Consumer Staples -0.99%, and the Consumer Staples Select Sector SPDR ETF (XLP) -1.03%.
#4: Consumer Discretionary -1.07%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -1.38%.
#5: Real Estate -1.23%, and the Real Estate Select Sector SPDR ETF (XLRE) -1.22%.
#6: Information Technology -1.67%, and the Technology Select Sector SPDR ETF (XLK) -1.72%.
#7: Industrials -2.32%, and the Industrial Select Sector SPDR ETF (XLI) -2.29%.
#8: Financials -2.41%, and the Financial Select Sector SPDR ETF (XLF) -2.33%.
#9: Health Care -3.87%, and the Health Care Select Sector SPDR ETF (XLV) -3.83%.
#10: Energy -6.15%, and the Energy Select Sector SPDR ETF (XLE) -6.24%.
#11: Communication Services -6.29%, and the Communication Services Select Sector SPDR Fund (XLC) -5.16%.
Below is a chart of the 11 sectors’ YTD performance and how they fared against the S&P 500 (SP500). For investors looking into the future of what’s happening, take a look at the Seeking Alpha Catalyst Watch to see next week’s breakdown of actionable events that stand out.