Market Caution: Navigating Technology and Energy Sectors
As we near the typically positive fourth quarter of the year, investors must approach the stock market with caution, particularly in the technology and energy sectors. Despite the S&P 500 reaching a record close, technical signals are sending up red flags that savvy investors cannot afford to ignore.
September Performance and Seasonal Myths
Contrary to the well-known lore of “Septembear,” the stock market has shown resilience this September. The S&P 500 has recorded its 42nd record close of the year, gaining a notable 1.7% thus far. However, Jeffrey Rubin, president and director of research at Birinyi Associates, advises against reaping too much into seasonal narratives. He considers them more of an entertaining sound bite than a basis for sound investment decisions. In Rubin’s analysis, seasonal trends have little bearing on profitability.
Technology Sector: Proceed with Caution
Within the technology sector, as represented by the Invesco QQQ Trust (QQQ) and the Technology Select Sector SPDR ETF (XLK), Rubin observes concerning signals. While he does not advocate a bearish stance on technology, he recommends caution due to a prolonged wide trading range since early June. Specifically, the XLK fluctuates between $203 and $233, while the QQQ ranges from $443 to $496. Rubin suggests that investors should confine their purchases to the lower end of these ranges—buying in when prices dip instead of chasing highs—adopting a strategy of “smaller bites” and shorter time frames until a clear breakout occurs.
Energy Sector: Downtrend Dilemma
Turning to the energy sector, which is represented by the Energy Select Sector SPDR ETF (XLE), the outlook is far less optimistic. Rubin reveals that the energy segment is currently mired in a downtrend. With the XLE in the middle of its trading range, he emphasizes avoiding investment purchases in many energy-related companies, with the exception of pipeline firms. The price of oil sits about 26% lower than last year, and absent significant geopolitical upheaval in the Middle East, a resurgence to the peaks of 2023 seems unlikely.
The warnings abound: only a select few names in the energy sector are worth a closer look. Companies such as Williams (WMB), ONEOK (OKE), Targa Resources (TRGP), and Kinder Morgan (KMI) are identified as being in an upward trend. Conversely, several major players—like Exxon Mobil (XOM), EOG Resources (EOG), along with others including Baker Hughes (BKR) and Marathon Oil (MRO)—find themselves in a neutral position. Lastly, giants like Chevron (CVX) and ConocoPhillips (COP) are on the other end of the spectrum, firmly in a downward trend.
Market Overview
The macroeconomic landscape appears to show U.S. stock indices like the S&P 500 (SPX), Dow Jones Industrial Average (DJIA), and NASDAQ Composite (COMP) opening higher. This is coinciding with a minor dip in benchmark Treasury yields due to benign Personal Consumption Expenditures (PCE) inflation data. Currently, the dollar index is lower, oil prices remain flat, and gold hovers around $2,667 an ounce. The volatile dynamics of these sectors highlight why vigilance is crucial for investors looking to maintain a robust portfolio.
Final Thoughts
In conclusion, while many are quick to extol the virtues of a rising market, true investors know that caution is paramount, especially in the technology and energy sectors. With the S&P 500 soaring, the desire to invest may be high, but it should not overshadow the pragmatic advice from experienced analysts like Rubin. When navigating these choppy waters, remember: it pays to be wary, especially when the financial currents can shift abruptly.
