Stock market rally broadening 'could take a breather over the next few weeks'

Investing.com -- S&P 500 Equal Weighted (SPW) and S&P 500 (SPX) delivered historic returns in the third quarter, but seasonality “looks bumpy for the broadening trade” over the coming few months, according to Barclays strategists.

The Q3 performance of two indexes ranked above the 90th percentile of previous quarterly results. The gains were particularly strong at the start, as July returns were in the 97th percentile, which is noteworthy given that the third quarter, especially July, typically presents challenges for SPW.

Looking ahead, while the fourth quarter generally supports equities, seasonality may act as a tailwind for SPX in October and for SPW in December. Barclays strategists highlight three key observations.

First, SPX and SPW could receive a boost from the upcoming earnings season, as estimates have been significantly revised down, particularly in non-Tech sectors.

Second, December's favorable seasonality for both SPW and SPX might align with the “long-awaited convergence in earnings growth between Big Tech and the broader equity market,” strategists said in a Friday note.

Lastly, the end of the U.S. election in November may benefit SPW, as Value stocks, which are closely tied to SPW, typically perform well following U.S. presidential elections.

"All in, we think it's possible that the broadening trade takes a breather over the next month or so, before fundamentals and thematic positioning bring buyers back to the table closer to the end of the year," the strategists noted.

U.S. stocks closed lower on Thursday as investors awaited the September jobs report and monitored the escalating conflict in the Middle East.

The upcoming payrolls report is seen as crucial for the direction of U.S. interest rates, with economists expecting 140,000 job additions and an unchanged unemployment rate of 4.2%.

The Dow Jones Industrial Average dropped 184.93 points, or 0.44%, to 42,011.59. The S&P 500 fell 9.58 points, or 0.17%, to 5,699.96, and the Nasdaq Composite slipped 6.65 points, or 0.04%, to 17,918.48.

Meanwhile, the CBOE Volatility Index , a gauge of market fear, climbed to 20.49, its highest level since early September.

Source: Investing.com