The Fed's first rate hike since 2023 has left six in ten S&P 500 stocks below trend
On September 16 the Federal Reserve raised its policy rate by a quarter point to a range of 3.75% to 4%, a unanimous decision and the first increase in more than three years. Kevin Warsh, who replaced Jerome Powell as chair in May, signaled at least one more before the year is out.
The equity market had been telling on itself for weeks beforehand. Barchart figures via Investing.com show 39.96% of S&P 500 members trading above their 100-day moving average as of September 22, down from a peak near 75% in late July and below the 50% line since early this month.
Inflation explains most of the change in tone. The personal consumption expenditures index rose 3.7% in the year through June, with core at 3.3%, both of which Fed Governor Lisa Cook flagged in an August speech as well above target. Warsh then used Jackson Hole to say recent improvements did not show that underlying trends had meaningfully improved, and odds of a September hike on CME FedWatch moved from roughly 30% to 56% within days.
The speed of the reversal owes something to positioning. Citadel Securities counted a 22% rally from the March 30 low, worth about $12 trillion in added market value across five months, before leveraged ETF assets fell $70 billion (31%) from their June peak, with semiconductor funds down 50%.
Seasonality is not helping. September has been the weakest month of the year since 1928, closing lower in 55% of years and averaging -1.5% in midterm years, per the same Citadel note, and the second half of the month is historically the worst two-week stretch on the calendar. With one more hike penciled in, that 40% reading has a few sessions left to survive.
Sources: CNBC on the September 16 Fed decision, Yahoo Finance on the unanimous quarter-point hike, Yahoo Finance on FOMC odds after Warsh's Jackson Hole speech, Citadel Securities, September Setup, plus Barchart via Investing.com as charted.