Nervous US markets and Chinese stocks continuing to run. It's going to be a bumpy October

The US Indices were all down on Tuesday. Mag7 slightly underperformed the wider market and all market caps bands were down on the day. Large and Medium cap stocks performed best. The VIX was up at 19 - it hit 65 intraday on 5 August, its highest level since Covid in 2020. The main indices were; DJIA -0.41%, S&P 500 -0.93% and Nasdaq -1.53% (Mag7 -1.35%). On an equal weighted basis (our measure) the overall market was down -1.28%. Breadth was weak at 28% (range of 12% to 88% over the last six weeks) volumes were healthy at 9.1b (the average daily volume over the last year of 7.8b and hit 15bn on Friday 8/20). 

One day returns as follows - equal weight basis: Mag7 -1.28% (META +0.7%, GOOGL +0.7%, NDVA -3.7%, AAPL -2.9%, MSFT -2.2%), large cap -0.31%, medium cap -0.64%, small cap -1.29% and micro cap -1.73%. On a 1 and 2 week equal weight basis respectively; Market +0.1% and +0.8%, Mag7 -0.5% and +3.8%, Large caps +0.4% and +2.6%, Medium cap +0.8% and +3.5%, Small cap -0.4% and +0.4% and finally Micro cap +0.2% and -0.3%.

The Markets are still struggling to work out the underlying direction following September's interest rate cut. Chinese stocks are on fire at the moment, the Shanghai index is up c23% over the last two weeks and this is distorting US markets. Add to this the escalation in the Middle East and the poor performance of Micro cap stocks yesterday and risk appears to be on the rise - as indicated by the rising VIX index. All this ahead of the release of the September nonfarm payroll this Friday.

The sector bias was in favour of the Bear market sectors on Tuesday. The run in Chinese stocks continues to distort and mask general softness. Energy was the best performing sector following the oil spike due to escalations in the Middle East. Consumer non-Cyclical particularly Food and Beverages, the traditional defensive plays, were both up on the day. Basic Materials were also strong with Gold, Silver, Aluminium and Copper stocks all up. Soft Fintech pulled the Tech sector down again yesterday, Technology Hardware was also weak. Healthcare was weak across all sectors having had a two day run of outperformance - the sector has underperformed the market by 11% over the last six months.

A notable number of 52 week highs in the following sectors: Consumer Cyclicals (Homebuilding, Media and a number of Chinese travel companies) Financials (across the sector), Industrials (across the sector ex Transportation), Real Estate (Residential and Commercials REITs), Industrials (Aerospace and Defence presumably on the back of escalation in the Middle East and across most other parts of the sector), Technology (Software & IT Services including a number of Chinese online services companies) and Utilities (Electric & IPPs). Notable high volumes across the Market ex Utilities again, Consumer non-Cyclicals and Basic Materials.