LIVE MARKETS-How to trade the rest of the year

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S&P 500, Nasdaq ~flat, DJI edges red

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U.S. Sep NAHB housing market index 45 vs 50 estimate

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Euro STOXX 600 index down >1%

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Dollar, gold ~flat; crude gains ~1%; bitcoin up >3%

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U.S. 10-Year Treasury yield edges up to ~4.34%

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HOW TO TRADE THE REST OF THE YEAR (1005 EDT/1405 GMT)

Morgan Stanley’s client survey showed most wonder if the rest of the year will bring more of the same mega-cap growth leadership seen so far this year, or if the rally will broaden out to areas that have underperformed this year - value and small/mid cap stocks.

The S&P 500 (.SPX) has risen ~16% so far this year driven largely by a surge in big AI names such as Nvidia (NVDA.O) and Meta Platforms (META.O) , while Europe’s STOXX 600 (.STOXX) is up 7.6%.

According to Mike Wilson, chief U.S. equity strategist at Morgan Stanley, it’s too early to pivot to small/mid caps. He recommends defensives and some cyclical sectors, especially energy.

“The sector is historically a late-cycle outperformer… oil demand is strong, production cuts have been significant and our commodity strategists see crude prices underpinned around current level,” Wilson says.

The sector’s valuation remains “quite attractive” after underperforming from November to July, he notes.

The S&P 500 energy index (.SPNY) fell 3% over that period against a near 19% rally in the S&P 500. In Europe, the energy index (.SXEP) fell 0.5% versus a 14% jump in the STOXX 600.

But Wilson notes a difference in approach in U.S. and Europe.

Many U.S. investors believe large cap growth winners will continue to lead in the last quarter if the broad market holds together, while in Europe, value stocks are preferred, mainly due to the absence of large growth stock drivers like in the U.S.

Meanwhile, for next year, most MS says clients expect a recession and are bracing for a more challenging year for risk assets relative to 2023.

(Susan Mathew)

S&P 500 INDEX: TRADERS BRACE FOR THE FED, CHANGE OF SEASONS (0900 EDT/1300 GMT)

The S&P 500 index (.SPX) edged down last week by just 0.2%. This as traders brace for the results of the latest FOMC meeting this coming Wednesday.

According to the CME FedWatch tool (FEDWATCH) , there is a 99% probability that the Fed sits on its hands and leaves rates unchanged at the conclusion of this week’s meeting. There is a 1% chance they lift rates by 25 basis points.

Looking out through the rest of the year, the FedWatch Tool is still suggesting the most likely outcome is no change in rates.

In any event, given that the date of this week’s FOMC meeting falls within the orb-of-influence of the autumnal equinox, which occurs this coming Saturday, September 23 at 250 AM EDT, the potential for volatility is there.

Proponents of Gann Theory, or methods of technical analysis developed by W.D. Gann, as well as other traders with an astro-focus, may look for either an acceleration of the prevailing trend, or a reversal, around the summer and winter solstices, as well as the fall and spring equinoxes.

Just looking back over the past five-and-a-half years or so, a number of major reversals in the S&P 500 have developed around these potential turn dates:

Thus, it now remains to be seen if the combination of the FOMC meeting and the change of seasons, is primed to spark the next S&P 500 rocket-ride, or whether instead the benchmark index is poised for a sharp fall back to earth.

(Terence Gabriel)

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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)