The S&P 500's short-range oscillator has stayed oversold for 14 straight sessions, a stretch the CNBC Investing Club is treating as a buy signal even as Treasury yields sit near two-decade highs. Second-quarter GDP was also revised up, complicating the case that higher rates alone should drive the market lower.
The S&P 500's Short Range Oscillator, a momentum gauge tracked closely by the CNBC Investing Club, has flashed oversold for 14 consecutive sessions. The Club says its own discipline is to buy stocks once the indicator turns this negative, and the only comparable stretch this year came in March, when it stayed below its threshold for 23 sessions around the S&P 500's year-to-date closing low on March 30.
Rate path clouds the picture
The current weakness follows a Federal Reserve move earlier this month that raised interest rates for the first time in three years, with at least one more hike expected before year-end. Bond traders have pushed the 30-year Treasury yield to its highest level since early 2002, while the 10-year has climbed to nearly two-decade highs. That backdrop has weighed on breadth: more than half of the S&P 500's constituents are trading below their 200-day average, leaving market leadership narrow.
Persistent inflation concerns tied to the run-up in oil prices have added to the pressure. West Texas Intermediate crude is still up 40% since the war started in late February and 57% year to date, even though Middle East oil exports have recovered significantly.
GDP revision shifts the odds
Wednesday brought a partial offset. The Fed's preferred inflation gauge came in cooler than expected, raising the odds the central bank holds borrowing costs steady at its October meeting. Second-quarter GDP also grew at an annualized rate of 2.2%, up from a prior estimate of 1.5%, a sign the economy is still running hot rather than stalling under higher rates.
That combination sits at the center of the debate over growth stocks such as Meta Platforms. Higher rates mechanically lower the present value of future earnings, the textbook argument for selling a stock like Meta. But the Club argues Meta's recent settlement of youth social media litigation with relatively minimal consequences, along with its new Muse AI agent and the newly announced Meta Enterprise Platform, could let earnings growth outweigh the rate headwind.
Source: US Top News and Analysis
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