Most of the major indices closed this volatile week little changed from last Friday.
The S&P 500 was fractionally lower on the week, the Nasdaq Composite declined 0.2%, the Dow Jones Industrial Average settled 0.6% lower, and the Russell 2000 underperformed, dropping 1.4%.
The week opened with a continuation of the global sell-off that began last week on fears about US economic growth following last Friday's jobs report. Japan's Nikkei slumped 12% on Monday, precipitating a big sell-off in US equities. This huge downturn was related to an unwinding of the yen carry trade as the yen strengthened rapidly against the dollar.
Monday's sharp moves lower had the S&P 500 flirting with correction territory (i.e. 10% decline from its recent high).
The carry-trade unwinding settled down and the Nikkei jumped over 10% on Tuesday as the yen weakened against the dollar. The market was still worried about the unwinding of carry trades revving back up given how entrenched it had become with Japan holding rates below zero, or near zero, for so long.
The market was also concerned about the U.S. economy slowing more quickly than it had previously believed it would; and it is also concerned about the Fed making (or having already made) a policy mistake by keeping the target range for the fed funds rate unchanged at 5.25-5.50%.
This thinking kept the market in check, yet there were signs that recession fears started to moderate by the end of the week. The Atlanta Fed GDPNow model estimate for real GDP growth in the third quarter was 2.9% in the latest estimate, up from 2.5% on August 1.
A pleasing weekly jobless claims report, which showed initial claims decreasing by 17,000 to 233,000, supported the notion that concerns about a recession were overblown. Market rates jumped in another reflection of moderating recession worries.
The 10-yr note yield rose 15 basis points to 3.94% and the 2-yr note yield jumped 18 basis points to 4.05%. This week's action put some renewed pressure on the 2s10s spread, compressing it by three basis points to -11 basis points.
Earnings season continued this week. Eli Lilly (LLY) was a winning standout, gaining 10.8% in response to blowout earnings and guidance.
Only four S&P 500 sectors closed with gains. The energy (+1.2%) and industrials (+1.2%) sectors logged the biggest gains followed by communication services (+0.8%) and financials (+0.6%). The materials sector was the worst performer, dropping 1.7%, followed by the consumer discretionary (-1.0%) and utilities (-0.9%) sectors.
S&P 500: +11.5% YTD
Nasdaq Composite:+11.0% YTD
S&P Midcap 400: +5.6% YTD
Dow Jones Industrial Average: +4.7% YTD
Russell 2000: +2.8% YTD