S&P 500 Surges to Start Q4 –Do You Tail or Will it Fail?

S&P 500 – Talking Points

• S&P 500 surges over 2% as traders embrace lower Treasury yields
• Bank stocks push higher despite rumors surrounding Credit Suisse
• Tesla shares plunge as Q3 deliveries miss estimates

Stocks are soaring on the first day of the month following an extremely challenging September for risk assets. Both the Dow Jones and the S&P 500 put in their worst months since March 2020, as major US equity benchmarks sit perched perilously around their June lows. The S&P 500 lost 9.3% in September as higher US Treasury yields continued to push investors out of risk assets. Fed policy remains in focus as traders look to navigate a market where the element of price discovery returns to the forefront. While Monday’s bounce will be welcomed by many, it remains to be seen if it is just an “oversold bounce.” While Treasury yields continue to march higher, it remains difficult to be constructive on risk assets broadly.

Despite the overarching theme of higher borrowing costs, a bid into Treasuries across the curve offered some reprieve for stocks on Monday. Lower yields saw the US Dollar continue to ease from recent highs while equities bounced sharply from overnight lows. Energy names are putting in a strong rally during today’s session, with WTI advancing by more than 5.5% at one point. Notably, the VIX (volatility index) slipped back below 30.

Monday’s broad based rally sees extremely strong breadth, with advancing names far outnumbering declining names. Shares of Apple, Microsoft, and Google pushed tech higher, while Chevron, Exxon Mobil, and ConocoPhillips carried the energy sector higher. Bank stocks also advanced despite weekend rumblings over the health and stability of major investment bank Credit Suisse. Notably, shares of Tesla are lower by over 8.5% as the company reported Q3 deliveries that were light of Wall Street expectations.

S&P 500 Sector Performance

Courtesy of finviz

After making fresh YTD lows overnight around 3570, S&P 500 futures (ES) have ramped over 3% to trade at 3680. Price smashed through trendline resistance during this morning’s robust melt higher, as risk rallied following US PMI data at 10 AM EST. After checking back to the key pivot area at 3660, we have seen yet another move higher with price currently sitting below the Friday highs. This area of rejection saw a massive sell off Friday, so bulls clearly have a lot of work to do if we are to re-trade 3700+.

While the longer-term trend continues to point to lower prices, positioning and fresh quarterly flows may allow for a bounce from current levels. If bulls can take price beyond 3720, we may see a squeeze that could take us back the 3802 fib level. However, if today’s rally succumbs to the pressure of the overarching macro environment, price may sink back into the 3620-3630 zone.

S&P 500 Futures 1 Hour Chart

Chart created with TradingView

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— Written by Brendan Fagan

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