Earlier, I wrote about positive seasonal factors in Q4 helping US equities. Here’s the other argument, which I think is more compelling.
1) Put yourself in the shoes of a fund manager
The Nasdaq Composite is up 24.7% year-to-date and the S&P 500 is up 11%. If you’re matched or even come near that performance this year, then give yourself a pat on the back. Even if you’re only gained 8% in your fund this year after fees, that’s highly likely to be enough to keep people from calling in redemptions. Remember, fund managers aren’t really in the business of making money for other people, they’re in the business of acquiring assets under management.
So now you’re staring down Q4 and you have an option. You can essentially close the books for the year and put your money in a three-month t-bill. Those bills right now are yielding 5.48% at an annualized rate or 1.37% to expiration. So you can take whatever you’ve earned this year, add 1.37% more and get all your money back and ready to deploy for 2024. That sounds awfully tempting for anyone who has done reasonably well this year in a tough market.
2) The technicals aren’t pretty
At the end of August, with the September seasonal swoon looming I highlighted this chart as a potential head-and-shoulders pattern forming.
S&P 500 daily
As it turned over, I emphasized the potential for trouble.
Skip ahead to the present and the pattern is now clear and the measured target is very close to 4000, which would be a 6.4% decrease from here.
SPX daily
As for the Nasdaq Composite, the picture is similar but there’s still some hope with a different slope on the neckline.
Maybe that holds but there’s a good chance it doesn’t and we start to see heavy selling in megacap tech as some of the shine begins to wear off the AI trade.