The Stock Market Settled The Week Mixed At The Index Level.
Some rebound attempts throughout the week left the Nasdaq and Russell 2000 with slim gains while the Dow Jones Industrial Average and S&P 500 declined 1.3% and 0.7%, respectively. This is a growing belief that the stock market is due for a bounce after suffering steep losses in September, but rising long‐term rates kept stocks in check.
The 10‐yr note yield jumped 13 basis points this week, and 48 basis points this month, to 4.57%. The 2‐yr note yield declined eight basis points this week, and rose 18 basis points this month, to 5.04%.
The concern for stock market participants is not necessarily the size of the rate increases, but rather the pace at which rates are moving. In addition, the jump in rates more recently doesn't appear to be tied to a fear of more rate hikes by the Fed.
The fed funds futures market sees only a 14.2% probability of a 25‐basis points rate hike at the November FOMC meeting, versus 27.5% a week ago and 62.3% a month ago, according to the CME FedWatch Tool.
That understanding may create some angst about what else is driving the Treasury market. Some other factors include: the Fed having a long way to go still with its QT efforts, other central banks possibly selling Treasuries in a bid to support their currencies, and concerns about the budget deficit issue.
In addition to the move in interest rates, seasonality was cited as another potential factor weighing over the market. September, historically, has been the worst month of the year for the S&P 500.
Market participants received some economic data this week, including a weaker than expected August new home sales report, a low level of weekly jobless claims, and some pleasing inflation data in the form of the core‐PCE Price Index for August.
WTI crude oil futures jumped more than $7.00/bbl this month, settling Friday's session at $90.78/bbl, which stoked lingering concerns about inflation expectations, rising gas prices, and a slowdown in consumer spending.
The rate‐sensitive S&P 500 utilities sector saw the largest decline this week by a decent margin, falling 7.0%. The next worst performer was the consumer staples sector (‐2.1%). Only the energy (+1.3%) and materials (+0.2%) sectors registered gains on the week.
Nasdaq Composite: +0.1% for the week / +26.3% YTD
S&P 500: ‐0.7% for the week / +11.7% YTD
S&P Midcap 400: +0.3% for the week / +3.0% YTD
Russell 2000: +0.5% for the week / +1.4% YTD
Dow Jones Industrial Average: ‐1.3% for the week / +1.1% YTD