E-mini S&P 500
Fundamental Analysis

E-mini S&P 500 (ES) Futures: Investors Shifting Focus to Stable Sectors

  • Rising interest rates could lead to economic hardship.
  • Investors are favoring stable sectors like healthcare in a downtrend market.
  • Investors expect a wave of rate hikes this week.

E-mini S&P 500 (ES) futures remain under intense selling pressure as the US dollar soars following an upbeat jobs report. Some investors are choosing to place their bets in sectors that have held up well throughout a challenging year for equities due to recent volatility in US stocks.

Since mid-August, the S&P 500 has lost 9% of its value, mainly undoing the summer’s upward trend after Federal Reserve Chairman Jerome Powell warned that the central bank’s relentless pursuit of low inflation could cause economic hardship.

S&P 500 performance (Source: Refinitiv)
S&P 500 performance (Source: Refinitiv)

Consumer staples, healthcare, and utilities have all experienced a year-long decline that has been less pronounced than the S&P 500. Investors frequently favor businesses in these sectors when the economy is shaky because they believe people will continue spending money on basics like food and medication.

Despite a recent reversal, the energy sector is still one of 2022’s top gainers, with a 44% year-to-date gain.

The S&P 500 Dividend Aristocrats index, which monitors businesses that have raised their dividends every year for the past 25 years, has declined by nearly 10% this year, a less drastic reduction than the market’s overall slump.

The S&P 500 experienced a 3.3% loss last week. The index dropped 1.1% on Friday as the US labor market report suggested some signs of weakness. Moreover, the European gas crisis also weighed on the index.

The stock market’s summer-long rise has been severely weakened, with the S&P 500 currently up only roughly 7% from its mid-June low.

“The pullback in equities … and the rise in yields are in line with our view that investors had underestimated the willingness of central banks to tighten policy at current rates of inflation,” UBS Global Wealth Management wrote this week.

This week alone, RBA has raised rates by 50bps, and markets expect more rate hikes from the ECB and the BoC. The August consumer price report, due in mid-month and the last significant data point before the Fed’s policy meeting on September 20-21, will now be at the forefront. The outlook for E-mini S&P 500 futures will remain bleak as the underlying asset continues its decline. This decline is fueled by rising interest rates and a looming recession in the global economy.