Don’t buy the dip as the summer slump is officially here, says Goldman strategist

A previous version of this column incorrectly characterized the historical context for the drop in the Nasdaq on Wednesday. The article has been corrected to show the index’s decline was the sharpest since mid-Dec. 2022.

A bounce for the Nasdaq Composite could be in the making for Thursday, following the worst one-day percentage drop for the tech index since mid-December 2022, as a recent rotation out of its biggest companies got amped by concerns the U.S. would hit tech companies with more China restrictions.

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Given earnings season has just begun as summer vacations starting to beckon, the market may struggle to lure fresh money to push it higher.

Opinion: Market veteran Jim Rogers on stocks: ‘I’m waiting for something to go wrong.’

Wading in for bargains right now is not the way to go, says our call of the day from Goldman Sachs’ tactical strategist Scott Rubner, who offers seasonal caution.

He notes the S&P 500 hit 38 all-time highs this year, on pace for the second-most closing highs in 100 years.

“The pain trade is no longer higher from here. I am not buying the dip,” Rubner told clients in a note.

Rubner backs up his view with historical factoids showing that July 17 “typically marks the end of summer BBQ/pool/pirate-themed party, for the S&P 500 since 1928.” In other words, returns get tougher from here. As his table below shows “no more neon green days in the upcoming summer future:”

He notes the first 15 days of July marked the best two-week stretch for the S&P 500 SPX since 1928. “5 stocks are up 41%, the bar for those stocks heading into earnings is remarkably high. And by high, I mean they need to be great,” he says.

Rubner also tosses in other factoids, such as: “If you allocate $1 into the S&P 500 ETF SPY, 29 cents goes into the top 5 stocks, a new record…If you allocate $1 into the Russell 2000 ETF IWM, no single name exceeds more than 50 basis-point weight.”

August, he adds, is typically the “worst month of the year for equity flows. There are no predicted inflows in August as the capital has already been deployed for [the third quarter]. Buyers are out of ammo and I am on the look out for outflows,” Rubner says, providing this chart:

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He adds: “It is clear to me that the passive inflows have slowed, watch market on close imbalances, the market on close imbalance was -$8 [billion] for sale in the last 3 days.”

Rubner says markets should start to see lower trading liquidity as vacations for Wall Street start to kick off next week. As for what the strategist likes, he points to Nasdaq and S&P 500 lookback put options that expire in December, an exotic type of option whose payoff hinges on the minimum price of the asset over the span of that option.

Also read: Dow holds firm while Big Tech pullback sinks S&P 500. Here’s why the market can take it.

The markets

Stock futures ES00 YM00 NQ00 are mixed with gains led Nasdaq-100 futures NQ00, up 0.5%, as Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y rise. Gold GC00 and the dollar DXY are up. Follow MarketWatch’s Live Blog to catch the latest news.

The buzz

Weekly jobless claims shot up to 243,000, matching a nearly one-year high. A Philly Fed manufacturing gauge, meanwhile, saw marked improvement in July. Leading economic indicators are coming at 10 a.m. A handful of Fed speakers are also on the calendar: Chicago Fed Pres. Austan Goolsbee at 10 a.m., Dallas Fed Pres. Lorie Logan at 1:45 p.m., San Francisco Fed Pres. Mary Daly at 6:05 p.m. and Fed Gov. Michelle Bowman at 7:45 p.m.

The earnings spotlight will fall on Netflix NFLX after the close, with some eyeing a possible stock-split announcement.

Ahead of that, Domino’s Pizza shares DPZ are off 9% after disappointing revenue, D.R. Horton DHI earnings beat forecasts, but its revenue outlook was trimmed and shares are off. KeyCorp KEY is also slipping after posting a profit and revenue drop, while Abbott Laboratories ABT lifted its outlook.

Taiwan’s TSMC TW:2330 TSM beat expectations for profit and sales thanks to demand for AI chips, with shares up 4%, after an 8% slump Wednesday.

The European Central Bank held interest rates steady as expected. At a news conference that followed, Pres. Christine Lagarde said an interest-rate decision in September was “wide open.”

Republican vice presidential nominee JD Vance criticized “Wall Street barons” and President Biden in a speech at the party’s national convention.

Biden, meanwhile, is suffering from “mild” COVID-19 symptoms after testing positive while in Las Vegas, as ABC News reported that Sen. Majority Leader Chuck Schumer privately urged him to exit the race.

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Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

The chart

Albert Edwards, Société Générale’s global strategist known for his bearish views, is flagging a few concerns over how “a benign rotation could easily turn into a self-fulfilling market rout” for stocks.

“What might pop this tech bubble? A simple decline in EPS optimism might do the trick,” he says, providing the below chart showing how analyst upgrades for Nasdaq 100 stocks are starting to sour:

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