S&P500: Sector Rotation Holds as Warsh Reprices September Fed Forecast

The S&P 500 Lost a Quarter Percent and the Sector Tape Told the Real Story

The S&P 500 barely moved Friday. Down a quarter of a percent after Warsh repriced September. The selling hit technology and industrials hard. Buyers did not leave. They went somewhere else. Consumer discretionary ran. Energy held. Communication services caught a bid on Alphabet and Apple.

The Fed changed the rate outlook in one speech and the S&P 500 responded by shifting money from one side of the index to the other instead of heading for the exits. The index held near its short-term pivot and kept a 0.49% weekly gain intact.

The S&P 500 settled at 7,711.76, down 19.23 points or 0.25%.

Daily S&P 500 Index (SPX) Technical Analysis

The S&P 500 Index settled lower on Friday and on the weak side of a short-term pivot at 7,727.86 that could determine its near-term direction next week.

A sustained move on the strong side of the pivot will signal the presence of buyers. If this creates enough upside momentum, buyers could overcome Friday’s high at 7,771.48. This would put the index in a position to challenge the record high at 7,816.70.

A sustained move under the pivot will indicate the presence of sellers. This could generate the downside momentum needed to challenge the recent swing bottom at 7,639.01. A trade through the swing bottom will shift momentum to the downside, with the next potential targets being the intermediate retracement zone at 7,565.31 to 7,505.98 and the 50-day moving average at 7,562.87.

Warsh Told Jackson Hole That Rates Are Not High Enough

Warsh said the Fed still has work to do unless inflation moves toward 2% convincingly. Then came the line that moved everything. Financial conditions do not look restrictive. The market heard that as confirmation that the pause may already be over. Fed funds futures started repricing before Warsh finished talking.

September hike odds had been sitting near 35% heading into the speech. They came out the other side at roughly 58%.

The 2-year Treasury yield jumped more than 10 basis points to about 4.35% and the dollar ran to its strongest level since August 19.

Consumer Discretionary Had the Best Day on the Board

Amazon climbed 3.97% and that move alone would have been enough to lead the sector. Evercore ISI raised the price target to $355 from $315 after citing survey evidence that Alexa AI tools are driving purchases inside the retail business. But the consumer bid went well past Amazon.

Domino’s Pizza ran 5.40% on a day when the Fed chair was openly discussing higher rates. Lululemon advanced 5.05%. Expedia picked up 3.30% and eBay added 3.59%. Charter Communications gained 3.57%.

Consumer discretionary finished up 1.69% as a group. The buying was not concentrated in one name. It was spread across restaurants, retail, travel and media, and it held all afternoon.

Energy, Communication Services and Financials Held Their Ground

SLB gained 4.22% and pulled the energy sector to a 0.59% gain. Chevron finished higher. Crude eased during the week. The energy group does not flinch when the Fed reprices because its earnings come from oil prices and global demand, not from the short end of the Treasury curve.

Alphabet rose 1.7% and carried communication services to a 1.56% advance. Apple picked up 1.6%. Those two names steadied the top of the index while semiconductors were rolling over beneath them. Financials added 0.34%. A more aggressive Fed is not a recession call. Banks can work with higher rates. Friday’s tape treated the repricing that way.

Technology and Industrials Took All the Damage

Technology lost 1.29% and the semiconductor stocks took the worst of it. Marvell dropped 10.28% after its guidance raised questions about the timing of AI revenue tied to Google. Nvidia fell 4.6% one session after jumping nearly 9% on its earnings beat. The best catalyst the chip group has had in weeks could not hold for twenty-four hours once the rate trade reopened. Lumentum lost 6.39%. Lam Research gave back 5.24%. Coherent fell 5.48%.

Industrials lost 0.96% with Comfort Systems USA down 5.96% leading the group lower. Utilities fell 1.14%. Materials slipped 0.30%. PayPal was the single worst name in the index, down 12.71% after Advent and Stripe walked away from deal talks.

What to Watch

Every employment and inflation report between now and September 16 either builds on what Warsh started Friday or unwinds it. Hike odds nearly doubled in one session and the front end of the Treasury curve repriced accordingly. The next data prints carry more weight than any single earnings beat right now.

Friday showed the S&P 500 has places to go when the rate trade hits technology. Consumer names, energy stocks and the megacap anchors all absorbed selling that would have broken a narrower index. That rotation held the S&P 500 together while the Nasdaq was giving back Thursday’s gains. The question next week is whether new buyers show up to widen that support or whether the same handful of names have to keep doing all the work.

The index settled on the weak side of its short-term pivot. Above it, Friday’s high and the record are both in reach. Below it, the swing bottom and the 50-day moving average are the next levels traders will test.

More Information in our Economic Calendar.