US stocks fell to cap off a losing week as investors assessed the latest outlook for elevated rates. The market is still assessing whether the latest hawkish comments from the Federal Reserve will impact consumer and business spending.
The Fed’s latest “dot plot” indicated that officials believe one more rate hike is likely this year. The Fed also boosted its forecast for economic growth, suggesting it may not cut rates as quickly as previously expected next year.
Technology and Communication
The technology sector led the S&P 500 lower as investors rethought buying growth-oriented stocks in a higher-for-longer interest rate environment. Nvidia was down 2%, and Alphabet sank 1.9%. The tech-heavy index has now lost 2.4% in September, its second consecutive loss.
Traders remain confident the Fed will keep rates on hold through November at least, according to CME’s FedWatch Tool. They see only a 72% chance of the Fed hitting the pause button next month, down from about 81% a week ago.
Bond yields rose to record highs this week, as investors sought safer investments than stocks. Rising bond yields put pressure on stock prices, as they make stocks look more expensive unless companies deliver much stronger earnings than expected.
Investors also have been focusing on the possibility of a government shutdown later this year, as Congress has yet to agree on a budget. They are concerned that a shutdown would hurt fourth-quarter economic growth.
In earnings news, Ross Stores jumped 5% after the discount retailer reported stronger-than-expected quarterly profit and sales. Applied Materials fell 3.7% after the chipmaker’s profit forecast for the current quarter fell short of expectations. Estee Lauder fell 3% after the cosmetics company reported weaker-than-expected results and revenue.
Automakers were also lower after the United Auto Workers said it was expanding its strike against GM and Stellantis to include Ford, despite “real progress” made this week in negotiations. Ford shares slid 0.6%, and GM fell 1.3%.
Energy shares were down as oil prices slipped below $90 a barrel, dragging the S&P 500 energy sector lower. Hess (HES) and Chevron (CVX) both dropped about 2%. Oil prices rebounded slightly late Friday, with Brent crude up more than 1% at $92.40 a barrel.
Energy
The Federal Reserve’s hawkish message that interest rates could stay high for longer than expected has taken a toll on stocks. But investors also worry about rising oil prices and a potential government shutdown.
With third-quarter earnings season still a couple weeks away, investors have little to go on but Fed rhetoric and economic data. The yield on the 10-year Treasury note eased off its 16-year high posted this week, but it remains above 4%.
Investors are worried about inflation, which can dent corporate profits and crimp consumer spending. Rising prices for raw materials and other factors are driving up the costs of making things, and analysts expect those higher prices to stick around.
Energy stocks fell, led by driller Schlumberger (SLB) and gas producer ConocoPhillips (COP). Conoco’s shares were dragged down by lower crude prices, which are below $70 a barrel for the first time since December 2016. Oil-field services company Baker Hughes (BHGE) sank 6% after reporting disappointing quarterly results.
Consumer-discretionary stocks were among the weakest groups, with a loss of more than 2% led by a 4% drop for home builders PulteGroup (PHM) and D.R. Horton. Also weighing on the sector was a surge in US gasoline prices that pushed them above $4 a gallon for the first time this year.
Technology and communication stocks were a big weight on the market, with Apple (AAPL) falling 1.8% and Facebook dropping 2.5%. The tech-heavy Nasdaq Composite fell 3.4%. In the healthcare sector, lab equipment maker Thermo Fisher Scientific rose 6.5% after giving a positive business update. Travel-related stocks also made solid gains, with cruise line operator Carnival and Norwegian Cruise Line both rising 2%.
Shares in Ford (F) rose after the United Auto Workers spared the automaker from more strikes based on progress in contract talks. But the UAW ratcheted up its strike against General Motors (GM) and auto parts supplier Stellantis. That left the Detroit automakers with two active strikes, while Hollywood writers remained on strike against the major studios. The shaky markets were also impacted by “quadruple witching,” which is when four kinds of options and futures expire at once.
Healthcare
Amid worries about surging oil prices and a Fed policy that appears to be taking longer to hit its inflation target, investors turned cautious and shifted into safe-haven sectors such as healthcare. Shares of medical technology companies like UnitedHealth and Pfizer slipped Friday, but the sector bucked broader market declines by logging its third straight weekly gain.
The S&P 500 fell 0.2%, and the Dow Industrial Average dropped 0.17%. Consumer-discretionary stocks suffered as a result of the Fed’s hawkish message that rates would stay elevated to quell inflation.
That prompted a selloff in government bonds. The yield on the 10-year Treasury note rose to its highest level in nearly 10 years. Yields moved lower on Friday, but remain close to that record high. The wider stock market’s jitters also weighed on shares of smaller companies, including many that have yet to report earnings this year.
Investors are also weighing the Fed’s boost to its outlook for Gross Domestic Product (GDP), which pushed this year’s forecast to 2.1%, up from a previous prediction of 1.1%. “This suggests that the Fed believes that higher interest rates can be tolerated in a strong economy for longer than was thought,” said Vanguard economist Andrew Patterson.
As a result, the Fed’s recent reversal on its forecast “should reassure markets that the rate-hike path is not as fast or aggressive as it might have otherwise appeared,” according to Michael Skordeles, chief U.S. economist at Truist Advisory Services.
The S&P 500 healthcare index .SPXHC gained 1.4%, while healthcare stocks excluding insurers .SPXHCI fell 2%. The sector has received the most inflows of any industry this year, but it is down 2% this month.
Other stocks that traded mixed included Ford, which rose 1.9 percent after the United Auto Workers union spared it from more walkouts based on progress in contract talks. General Motors and Stellantis lost 0.4 and 0.1 percent, respectively. Listen to the latest Schwab Market Update podcast in your podcast app of choice. You can subscribe for free here. The Schwab Market Update podcast features market-moving news and commentary from investment professionals.
Travel
The Federal Reserve’s outlook on elevated rates dragged stocks lower this week as investors assessed its impact on demand for goods and services. The S&P 500 fell 0.2%, while the Dow lost about 100 points. The tech-heavy Nasdaq Composite lost 0.09%.
While the Fed’s decision to leave interest rates unchanged for now is a boon for banks, higher rates make it more expensive for companies and consumers to borrow money. This has weighed on profit forecasts for corporate America, which have come in below expectations. Ross Stores jumped 5%, the biggest gainer in the S&P 500, after reporting better results than Wall Street expected, while Applied Materials and Estee Lauder both declined after releasing disappointing earnings estimates.
Travel and leisure stocks feed off people’s inherent impulse to explore. But this sector is vulnerable to market fluctuations and economic conditions, particularly when there’s uncertainty around global travel. That’s why it pays to research any potential picks thoroughly.
One way to vet travel stock picks is to look at how they’re expanding their operations. When a company announces new routes, it’s often a sign of strong demand and growth potential for its services.
Another way to assess travel stocks is to look at their balance sheets. A travel company with strong cash flow is a good indicator that it has enough wiggle room to weather economic or business challenges.
A final thing to consider is a company’s outlook for the future. If a company sees its profits declining, it might need to raise prices or cut costs to boost revenue. That could have a negative impact on the company’s profits and share price in the long run.
Investors have been keeping their eyes peeled for signs of a slowdown in the economy, which would make it more difficult for companies to grow. This has made it even more critical for investors to research any picks before making a decision to buy or sell.
