The S&P 500 (SP500) experienced a significant retreat this week, with a 2.53% decline, closing at 4,117.37 points. The losses were recorded in four out of five trading sessions. The SPDR S&P 500 Trust ETF (NYSEARCA:SPY) also slipped 2.50% for the week.
This decline has pushed the S&P 500 into correction territory, with Friday’s closing price representing a more than 10% drop from its 52-week high of 4,588.96 points, which was achieved on July 31. This negative milestone follows closely behind the Nasdaq Composite (COMP.IND), which also entered correction territory earlier this week.
Megacap Technology Stocks Drive Market Retreat
The slide in megacap technology stocks, particularly the “Magnificent 7” club, was the primary driver for the overall market retreat this week. With the exception of Amazon (AMZN) and Microsoft (MSFT), all members of the club experienced weekly losses. Netflix (NFLX) was down 0.8%, Nvidia (NVDA) down 2.1%, Apple (AAPL) down 2.7%, Meta Platforms (META) down 3.9%, and Alphabet (GOOG) (GOOGL) down approximately 10%.
Alphabet’s Google-parent company (GOOG) (GOOGL) delivered strong growth in its core search business, but investors were disappointed with its cloud performance. Additionally, Meta (META), the owner of Facebook, provided cautious forward-looking commentary, noting that volatility in the macro environment could have a significant impact on the advertising market next year.
The “Magnificent 7” stocks account for nearly 30% of the S&P 500’s market capitalization and have played a crucial role in the benchmark index’s rally throughout 2023.
Bright Spots in the Market
Despite the overall market retreat, Microsoft (MSFT) and Amazon (AMZN) stood out as bright spots this week. Microsoft impressed investors with its Azure cloud results, while Amazon exceeded profit expectations and reassured investors of its strong future in cloud computing and generative artificial intelligence.
Keith Lerner, co-chief investment officer at Truist, sees this market pullback as an opportunity for investors to add to their equity positions. In a research note, he stated, “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.”
Additionally, Lerner pointed to technical indicators such as the percentage of stocks trading above their 200-day moving average, which currently stands at only 26.8%. This indicates indiscriminate selling and suggests that the market may be oversold or stretched to the downside. He also highlighted the recent pressure on the Magnificent 7 stocks, which have been market leaders and are now down an average of 17% from their 52-week highs.
Economic Data and Fed Meeting in Focus
While the third-quarter earnings season dominated headlines this week, traders also paid close attention to economic data and the ongoing conflict between Israel and the Islamist group Hamas.
Noteworthy releases in the economic calendar included a significant surge in September’s new home sales, a higher-than-expected U.S. Q3 GDP growth rate, and an increase in the core personal consumption expenditures price index – the Federal Reserve’s preferred inflation gauge. The upcoming week will be heavily focused on the Federal Reserve’s monetary policy meeting and rate decision, which will be closely watched by market participants.
Sector Performance
Of the 11 sectors in the S&P 500, only Utilities managed to end the week in positive territory, with a gain of 1.24%. The other 10 sectors experienced declines, with Energy and Communication Services leading the losses, declining by more than 6% and 5%, respectively. Technology also saw a decline of nearly 2%.
| Sector | Performance | ETF Performance |
|---|---|---|
| Utilities | +1.24% | +1.21% |
| Materials | -0.45% | -0.46% |
| Consumer Staples | -0.99% | -1.03% |
| Consumer Discretionary | -1.07% | -1.38% |
| Real Estate | -1.23% | -1.22% |
| Information Technology | -1.67% | -1.72% |
| Industrials | -2.32% | -2.29% |
| Financials | -2.41% | -2.33% |
| Health Care | -3.87% | -3.83% |
| Energy | -6.15% | -6.24% |
| Communication Services | -6.29% | -5.16% |
For a comprehensive view of the year-to-date performance of these sectors compared to the S&P 500, refer to the chart below.
Conclusion
The S&P 500 faced a significant decline this week, slipping into correction territory. The retreat was primarily driven by the slide in megacap technology stocks. However, there were bright spots, with Microsoft and Amazon outperforming expectations. Economic data releases and the upcoming Federal Reserve meeting will be closely monitored for further market direction. As investors navigate this market pullback, it presents an opportunity to reevaluate equity positions and assess potential buying opportunities.
