Market Recap - STOCKS FALL IN POST-FOMC RETREAT

October Came To An End On Monday And The Dow Jones Industrial Average Logged Its Best Monthly Performance Since 1976 With A Gain Of 14.0%. The Stock Market Was Due For A Period Of Consolidation After A Big Run, Which Picked Up Steam As The Week Progressed.

The major averages clung to a fairly narrow trading range in the first half of the week as market participants played a waiting game ahead of the FOMC policy decision on Wednesday and Fed Chair Powell's subsequent press conference. 

The big run in October was partially predicated on the notion that the Fed might soften its approach after the November meeting. The following line in the policy directive from Wednesday added fuel to that notion:

"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

Market participants quickly adjusted to the reality that the Fed is apt to raise rates higher than expected for longer than expected. Fed Chair Powell said at his press conference, "When (people) hear lags, they think about a pause. It's very premature in my view to be thinking about or talking about pausing our rate hike. We have a way to go. We need ongoing rate hikes to get to that level of restrictive. We don't know where that exactly is."

Mr. Powell was also struck by how resilient the labor market has been, noting that the unemployment rate is still sitting near a 50-year low and that wage inflation, while flattening out, is still well above the level that would be consistent over time with 2.0% inflation.

The October Employment Report reflected a labor market that isn't showing enough weakness yet to convince the Fed that it can stop raising the target range for the fed funds rate. That point notwithstanding, the October employment situation was more consistent with achieving a soft landing for the economy than a hard landing.

Other economic data of note this week included the ISM Manufacturing Index for October. That report reflected a moderation in manufacturing activity that borders on contractionary territory, which hasn't been seen since the pandemic-led contractions in April and May 2020. The ISM Non-Manufacturing Index for October showed that business activity for the non-manufacturing sector, which comprises the largest swath of U.S. economic activity, softened in October at the same time price pressures remained elevated.

Treasury yields were on the rise in anticipation of Wednesday's FOMC decision, but yields really moved up after that. The 2-yr Treasury note yield rose 25 basis points this week to 4.67%. The 10-yr note yield rose 15 basis points this week to 4.16%.

Other central banks made headlines this week aside from the Fed. European Central Bank (ECB) President Lagarde said that recession risk in the eurozone has increased, and that inflation is too high. ECB policymaker Nagel said that the ECB has a long way to go on rate hikes and that the central bank should begin reducing its bond portfolio at the start of 2023. The Reserve Bank of Australia raised its cash rate by 25 bps to 2.85%, as expected. The Norges Bank raised its key rate by 25 bps to 2.50% and the Bank of England raised its key rate by 75 basis points to 3.00%.

Market participants received earnings reports from over one third of the companies in the S&P 500 this week. Per usual, there were some big winners and big loser, yet macro factors tended to overshadow the individual earnings reports.

Growth stocks struggled this week, which were afflicted by rising interest rates, weak guidance in a number of cases, and the shift out of the mega-cap darlings. The Vanguard Mega Cap Growth ETF fell 6.8% this week. Apple and Amazon.com were among the losing standouts for the group. 

Meanwhile, Chinese stocks were a pocket of strength this week as speculation circulated that China will ultimately relax its zero-COVID policy. JD.com and Alibaba were among the biggest winners for Chinese stocks. 

Energy stocks were another pocket of strength in the market. The S&P 500 energy sector closed with the biggest weekly gain, up 2.4%, as WTI crude oil futures rose 5.4% to $92.60/bbl. Only two other sectors out of the 11 total were able to squeeze out a gain on the week. Industrials rose 0.4% and materials rose 0.9%.

The dollar had a whipsaw week. The U.S. Dollar Index was inching higher all week until taking a sharp turn lower Friday as other major currencies registered big gains against the greenback (EUR/USD +2.1% to 0.9960). The U.S. Dollar Index closed the week unchanged. 

• Dow Jones Industrial Average: -1.4% for the week / -10.8% YTD

• S&P Midcap 400: -1.2% for the week / -15.4% YTD

• S&P 500: -3.4% for the week / -20.9% YTD

• Russell 2000: -2.6% for the week / -19.8% YTD

• Nasdaq Composite: -5.7% for the week / -33.0% YTD

Market Recap - Mega caps fall, but indices rise

It Was, Generally Speaking, A Strong Week For The Stock Market. Mega Cap Stocks, Which Have Been Looked At For So Long As Highly Robust, Fell Off Sharply As Earnings News Rolled In This Week.

Apple was a rare exception among the tech giants, trading up after reporting quarterly results. Meta Platforms, Alphabet, Microsoft, and Amazon all suffered heavy losses on the heels of their respective earnings reports.

The struggling mega caps didn't weigh as hard on the broader market as one might expect. A pack of blue chip companies provided a welcome distraction with good earnings news and guidance. Honeywell and Caterpillar were two of the biggest beneficiaries of this rotation out of the mega cap stocks. 

Interest in names like Caterpillar and Honeywell led the S&P 500 industrials sector to close with the biggest weekly gain, up 6.7%. Other top performing sectors this week included utilities (+6.5%), financials (+6.2%), and real estate (+6.2%).

Meanwhile, the losses incurred by Meta Platforms and Alphabet drove the communication services sector to close down 2.9% on the week. It was the only sector to end the week with a loss. Another top laggard was the consumer discretionary sector (+0.7%). The remaining six sectors all closed with gains of at least 2.8%.

Small cap stocks were a specific pocket of strength this week. The Russell 2000 gained 6.0%, which was more than the three major averages. 

Other notable movers included Chinese stocks, and U.S. stocks with high exposure to the Chinese market, which sold off sharply in the first half of the week. This followed President Xi Jinping securing an unprecedented, third five-year term to serve as China's leader. That wasn't surprising, but it did come as a shock to many investors that he managed to surround himself only with loyalists who are apt to help him pursue tighter regulations and the continuation of China's zero-Covid policy. 

JD.com and Pinduoduo were losing standouts for Chinese stocks while Las Vegas Sands and Starbucks also suffered heavy selling on concerns related to Xi's power grab. By the end of the week, however, these names were able to reclaim some of their losses. 

There is a growing belief among market participants that the Fed will soften its approach after the November meeting. The policy move from the Bank of Canada this week further fueled this notion. The Bank of Canada raised its key policy rate by 50 basis points versus an expected 75 basis points. The European Central Bank, however, delivered a 75 basis point increase for its key policy rates, as expected.

Market participants digested a slew of economic data this week that both supported and undermined the notion that the Fed will soften its approach soon. Some of the data releases included:

• September Personal Income 0.4% (Briefing.com consensus 0.3%); Prior was revised to 0.4% from 0.3%; September Personal Spending 0.6% (Briefing.com consensus 0.4%); Prior was revised to 0.6% from 0.4%;

• September PCE Prices 0.3% (Briefing.com consensus 0.3%); Prior 0.3%; September PCE Prices - Core 0.5% (Briefing.com consensus 0.4%); Prior 0.5%

  • The key takeaway from the report is that with continued income growth and a slightly hotter than expected Core PCE price growth, the Fed has an argument to maintain its aggressive rate hike course.

• Weekly Initial Claims 217K (Briefing.com consensus 220K); Prior was revised to 220K from 214K; Weekly Continuing Claims 1.438 mln; Prior was revised to 1.383 mln from 1.385 mln

  • The key takeaway from the report is that the initial claims data suggest the labor market continues to hold up well, which of course is something that will continue to draw the Fed's attention.

• Q3 GDP-Adv. 2.6% (Briefing.com consensus 2.3%); Prior -0.6%; Q3 Chain Deflator-Adv. 4.1% (Briefing.com consensus 5.3%); Prior 9.0%

  • The key takeaway from the report is that it ends a two-quarter streak of negative GDP prints. It also suggests the economy held up well in the third quarter as it started to acclimate to rising interest rates. Real final sales of domestic product, which excludes the change in private inventories, increased a solid 3.3%.

• October Consumer Confidence 102.5 (Briefing.com consensus 105.5); Prior was revised to 107.8 from 108.0

  • The key takeaway from the report is that consumers' concerns about inflation picked up again in October on the back of rising gas and food prices.

Falling Treasury yields were a big support factor for the stock market. The 10-yr Treasury note yield dipped below 4.00%, but ultimately settled the week down 20 basis points at 4.01%. The 2-yr note yield fell nine basis points to 4.42%.

In other news, Rishi Sunak was elected UK Prime Minister.

• Dow Jones Industrial Average: +5.7% for the week / -9.6% YTD

• S&P Midcap 400: +5.3% for the week / -14.3% YTD

• S&P 500: +4.0% for the week / -18.2% YTD

• Russell 2000: +6.0% for the week / -17.7% YTD

• Nasdaq Composite: +2.2% for the week / -29.0% YTD

Market Recap - Logging strong gains on the week

The stock market had a strong week that saw the S&P 500, Dow, and Nasdaq register gains of 4.7%, 4.9%, and 5.2%, respectively. Price action in the Treasury market was highly influential over price action in the equity market

Things got off to a good start after Morgan Stanley Strategist Mike Wilson, who has been right this year with his bear market call, said the S&P 500 could get to 4,150 in a technical rally if a recession or earnings capitulation can be avoided. There was also a BofA fund manager survey that showed cash holdings at their highest level since April 2001 (6.3%), acting as a contrarian buying signal.

The stock market rally ran into resistance midweek while market participants digested a slew of new Fedspeak.

First, Minneapolis Fed President Kashkari (2023 FOMC voter) said that he could argue for the fed funds rate to go above 4.75% if he doesn't see any improvement in underlying or core inflation. Then, Philadelphia Fed President Harker (2023 FOMC voter) said he expects the fed funds rate to be well above 4.00% by end of the year. These comments coincided with the 10-yr note yield hitting its highest level since 2008 (4.23%) and the stock market shifting into retreat mode.

On Friday, San Francisco Fed President Daly (not an FOMC voter) said she thinks stepping down on the pace of rate increases will help preserve market structure. Saint Louis Fed President Bullard (FOMC voter) said he hopes to get a deflationary process going in 2023, adding that the job market remains strong, according to Bloomberg. These comments coincided with the 10-yr note yield pulling back to 4.21% and equities shifting back into rally mode. To be fair, the 10-yr note yield still rose 20 basis points this week.

In addition, The Wall Street Journal published an article by Nick Timiraos that indicated the Fed will raise rates by another 75 basis points at the November meeting, but will then possibly consider a smaller increase at the December meeting. Mr. Timiraos is thought by some to be the Fed's preferred source for leaking insight on what they are thinking about monetary policy in order to gauge the market's reaction to their thinking.

Notably, the 2-yr note, which is more sensitive to changes in the fed funds rate, did not exhibit the same outsized reaction as the 10-yr note. The 2-yr note yield only rose one basis point this week to 4.51%.

Earnings were generally better than expected this week, which was a nice tailwind for stocks. Bank of America and Goldman Sachs were standouts for financials; AT&T and Verizon were standouts for communication services; United Airlines and Lockheed Martin were standouts for industrials; IBM and Lam Research were standouts for information technology.

Meanwhile, Snap and Tesla went against the grain and disappointed with their quarterly results.

For the S&P 500 sectors, energy was the top performer this week with a gain of 8.1%. Information technology came in second place with a gain of 6.5%. On the flip side, utilities (+2.0%) and consumer staples (+2.2%) showed the slimmest gains.

In other news this week, Liz Truss resigned as the UK Prime Minister after roughly six weeks in office.

• Dow Jones Industrial Average: +4.9% for the week / -14.5% YTD

• S&P Midcap 400: +4.9% for the week / -18.6% YTD

• S&P 500: +4.7% for the week / -21.3% YTD

• Russell 2000: +4.7% for the week / -22.4% YTD

• Nasdaq Composite: +5.2% for the week / -30.6% YTD

Market Recap - ENDING WITH A BANG AND THEN A THUD

It Was Quite A Week For The Capital Markets. It Was Also A Losing Week For The S&P 500 Despite A 2.6% Gain On Thursday Following The September CPI Report.

One might be inclined to think that the CPI report was good. It was not. Total CPI was up 8.2% year-over-year, versus 8.3% in August, and core CPI, which excludes food and energy, was up 6.6% versus 6.3% in August. That was the highest level for core CPI since August 1982.

The capital markets reacted accordingly (initially) in the wake of that disappointing report. Stock prices screamed lower, Treasury yields shot higher, and the U.S. Dollar Index spiked. In the process, the S&P 500 fell to a new low for the year (3,491.58).

The move to that low, however, also included a 50% retracement of the pandemic rally. That realization ignited a technically oriented rebound effort that was exacerbated by short-covering activity and computer-driven buy programs. It was a monster rebound, too. A rally in the UK gilt market, which followed reports that Prime Minister Truss might scale back her fiscal stimulus plan, added fuel to the rebound effort.

The Dow Jones Industrial Average swung 1,507 points from its intraday low to its intraday high on Thursday; the S&P 500 ended with a 2.6% gain after dropping 2.4%; and the Nasdaq Composite closed with a 2.2% gain after an early 3.2% decline.

Alas, there was no follow through on Friday.

Although the S&P 500 would push as high as 3,712 on Friday, it quickly fell back as gilt yields rose sharply on festering worries about the state of the gilt market now that the Bank of England has withdrawn its emergency liquidity support, the 10-yr Treasury note yield topped 4.00%, and the recognition set in that Thursday's rally lacked fundamental credibility.

Some better-than-expected earnings results from JPMorgan Chase, Citigroup, Wells Fargo, and UnitedHealth provided a modicum of support but it was not enough to offset the broad-based selling pressure that picked up when the 10-yr note yield moved above 4.00%.

That move followed a preliminary University of Michigan Index of Consumer Sentiment report for October that showed a pickup in one-year and five-year inflation expectations. If nothing else, the inflation expectations data served as a reminder that the market got carried away with its post-CPI rally on Thursday.

It also stood out to market participants that the 10-yr UK gilt yield shot up to 4.38% (from 4.07% overnight) after Prime Minister Truss announced a scaled back fiscal stimulus plan and the firing of Finance Minister Kwarteng.

When the BoE announced its emergency gilt purchase operations on September 28, the 10-yr gilt yield stood at 4.32%, so the move above that level going into the weekend created some anxiety about what might unfold Monday in the gilt market when the BoE is back to the sidelines.

The selloff in the stock market on Friday was an orderly affair, which made it feel worse because there was very little interest from buyers. The same can be said for retail sales in September. There wasn't much added buying interest.

Total retail sales were flat month-over-month while retail sales, excluding autos, were up just 0.1%. The retail sales numbers are not adjusted for inflation, so the lackluster numbers for September suggested consumers were pulling back on spending activity in the face of high inflation.

We haven't spend much time talking about the early portion of the week, but that's because it was a truly back-end loaded week in terms of news drivers. The one exception perhaps was JPMorgan Chase CEO Jamie Dimon's observation on Monday that he thinks the economy will be in a recession in six to nine months and that the market could easily fall another 20% if there is something like a hard landing.

Separately, the IMF cut its 2022 global growth forecast to 2.7% from 2.9%, reports indicated new restrictions were being implemented in Chinese cities because of rising Covid cases, and President Biden indicated that there will be consequences for Saudi Arabia following the agreement to cut oil production. Russia, meanwhile, stepped up its missile attacks on Ukraine cities.

Thursday's trade notwithstanding, it was not a good week for a variety of reasons.

The hardest-hit sectors were consumer discretionary (-4.1%), information technology (-3.2%), utilities (-2.6%), and real estate (-2.4%). The Philadelphia Semiconductor Index, though, fared the worst of all, dropping 8.3%. Those sectors managing gains for the week included consumer staples (+1.5%), which got help from a good report out of PepsiCo (PEP),  health care (+0.8%), and financials (+0.2%).

The U.S. Dollar Index increased 0.5% for the week to 113.30.

• Dow Jones Industrial Average: +1.2% for the week / -18.4% YTD

• S&P Midcap 400: -1.0% for the week / -21.0% YTD

• S&P 500: -1.6% for the week / -24.8% YTD

• Russell 2000: -1.2% for the week / -25.1% YTD

• Nasdaq Composite: -3.1% for the week / -34.0% YTD

Market Recap - A Rally then a Retreat to Start October

The equity market had a strong start to the week, month, and fourth quarter. There was a broad rally on Monday and Tuesday as the market bought into the idea that the Fed would soften its approach sometime soon.

A pullback in Treasury yields from last Friday's closing levels helped fuel upside momentum in the beginning of the week.

The 10-yr Treasury note yield settled at 3.79% last Friday and fell to 3.62% by Tuesday's close. The 2-yr note yield settled at 4.20% last Friday and fell to 4.08% by Tuesday's close. At the same time, the S&P 500, Dow Jones Industrial Average, and the Nasdaq Composite logged gains of 5.7%, 5.5%, and 5.7%, respectively.

The idea that the Fed would soften its approach soon gained traction following weaker-than-expected ISM Manufacturing and Construction Spending data out of the U.S., and a 25 basis point rate hike from the Reserve Bank of Australia versus the expected 50 basis points. 

The week ended with a broad sell off, however, after Treasury yields moved up considerably and the September Employment Report threw cold water on the idea that the Fed would be less aggressive sometime soon. 

The 10-yr note yield rose eight on the week to 3.88%. The 2-yr note yield rose and ten on the week to 4.30%. Notably, the stock market was able to hang onto some of its gains this week despite heavy losses on Friday.

The S&P 500 was up 1.5%; the Dow Jones Industrial Average was up 2.0%; the Nasdaq Composite was up 0.7%.

The September Employment Report reflected continued strength in the labor market, stoking concerns about continued aggressive rate hikes from the Fed. There was also some hawkish Fed speak this week for participants to digest. Atlanta Fed President Bostic (2024 FOMC voter) said the inflation fight is still in the early days and Minneapolis Fed President Kashkari (2023 FOMC voter) said he is not comfortable pausing until there is evidence of inflation cooling.

Geopolitical worries were also in play this week after OPEC+ announced a production cut of 2 million barrels per day starting in November. This sent oil prices surging with WTI crude oil futures rising 17.3% this week to $93.20/bbl. 

The surge in oil prices contributed to the S&P 500 energy sector's gains this week. It outpaced the other 11 sectors by a wide margin with a gain of 13.9%. On the flip side, the real estate sector had the biggest loss this week, down 4.2%. 

• Dow Jones Industrial Average: +2.0% for the week/-19.4% YTD

• S&P Midcap 400: +2.9% for the week/-20.2% YTD

• S&P 500: +1.5% for the week/-23.6% YTD

• Russell 2000: +2.3% for the week/-24.2% YTD

• Nasdaq Composite: +0.7% for the week/-31.9% YTD

Market Recap - Good Riddance September

Good Riddance September. It Was Not Nice Knowing You, Which Is Often The Case. This Year, Though, You Were Particularly Mean. Including This Week's Losses, The Dow, Nasdaq, S&P 500, Russell 2000, And S&P Midcap 400 Declined 9.0%, 10.5%, 9.3%, 9.7%, And 9.4%, Respectively, In September.

This week had the same feeling of desperation as recent weeks have had. The desperation was rooted in concerns about rising interest rates, the extreme volatility seen in currency and bond markets, and worries that the global economy is headed for a recession. 

Aside from that, there was a nagging concern that the volatility across capital markets and the rapid increase in interest rates are going to lead to a "financial accident" that could have systemic implications. That worry was a major headwind and it was given some credence when the Bank of England (BoE) stepped in Wednesday to buy UK government bonds in a bid to restore orderly market conditions.

That move by the BoE was reportedly precipitated by pension funds running into trouble with derivative positions that were leading to margin calls and forced selling. The BoE was slated to begin selling gilts next week. It was forced to postpone that effort, and instead it will carry out temporary purchases of UK government bonds between September 28 and October 14.

The stock and bond markets staged a notable rally on Wednesday following the decision. The S&P 500 jumped nearly 2.0% and the 10-yr note yield pivoted from 4.00% to 3.75%.

The British pound also found some welcome support after hitting a record-low against the dollar earlier in the week when the BoE held off with any support measures, saying only that it will make a "full assessment" of matters at its next scheduled meeting. The untenable action in the bond market and mounting losses for pension funds, however, ultimately forced the BoE's hand.

The good vibes from the BoE announcement were short-lived. On Thursday Prime Minister Truss said she will be sticking with her tax cut plan, the announcement of which last week was the source for the sharp selling of gilts and the pound.

Everything that was gained on Wednesday in the stock market was given back on Thursday and then some. 

There were other factors in play for yet another losing week. One of the biggest overhangs was the weakness in Apple. It dropped 8.1% this week, with most of those losses coming on Thursday and Friday. The selling was attributed to worries about demand for the new iPhone. BofA Securities downgraded Apple on Thursday to Neutral from Buy, citing concerns about negative estimate revisions being driven by weaker consumer demand.

Apple's problems bled over to other mega-cap names, as well as supplier stocks, the major indices, and a plethora of funds that hold it as a core position. The Vanguard Mega-Cap Growth ETF declined 3.4% this week, leaving it down 10.7% for the month.

The loss of leadership from Apple weighed heavily on investor sentiment and contributed to the S&P 500 breaking down to new lows for the year. Most stocks, though, contributed to that breakdown, including Nike which slumped 12.8% on Friday after reporting a huge inventory build (+44% yr/yr) for its fiscal Q1 and warning that it expects to face continued gross margin pressure in fiscal Q2. Nike's challenges, and an earnings warning from Rent-A-Center, added to the market's slowdown worries.

The only sector to end the week with a gain was energy (+1.8%). The remaining ten sectors recorded losses ranging from 0.7% (materials) to 8.8% (utilities).

It didn't help matters this week that most Fed officials with speaking engagements spoke to the need to keep raising rates to get inflation under control. Cleveland Fed President Mester (FOMC voter) arguably had the most damning remark for the stock market, saying that policy rates are not yet at the restrictive level. Separately, a record-high 10.0% yr/yr increase for CPI in the eurozone seemingly solidified expectations for a 75-basis point hike by the ECB at its October meeting.

That CPI number was out on Friday along with the PCE Price Index for August. The latter showed a slight moderation in the year-over-year rate to 6.2% from 6.4% in July; however, the core-CPE Price Index, which excludes food and energy, jumped to 4.9% year-over-year versus 4.7% in July. That indication, coupled with the lowest initial jobless clams reading on Thursday (193,000) since early May, continued to stoke concerns about the Fed pursuing an aggressive rate-hike policy.

The week also ended on a down note geopolitically. President Putin announced the unlawful annexation of four Ukraine regions on Friday, as expected. That move will not be recognized by Ukraine and most other countries, but since it is being recognized by Putin, it will raise the temperature around this conflict since he has said Russia will use any means necessary, including nuclear weapons, if its territory is threatened.

Altogether it was a tough end to the week, which brought a very tough month to a close while leaving a lot of bothersome issues unresolved and a stock market deeper in bear market territory.

• Dow Jones Industrial Average: -2.9% for the week/-20.9% YTD

• S&P Midcap 400: -1.6% for the week/-22.5% YTD

• S&P 500: -2.9% for the week/-24.8% YTD

• Russell 2000: -0.9% for the week/-25.9% YTD

• Nasdaq Composite: -2.7% for the week/-32.4% YTD

Market Recap - STOCKS SINK (AGAIN) AS RATES RISE (AGAIN)

The Month Of September Has Been The Worst-Performing Month Of The Year Historically For The Stock Market. Unfortunately, It Is Living Up To That Historical Reputation This September. Following A 4.6% Decline This Week, The S&P 500 Is Down 6.6% For The Month.

The weakness hasn't been reserved for the S&P 500. It has spread across the stock market and has been even more pronounced in other places. The Nasdaq declined 5.1% this week and is down 8.0% for the month. The Dow Jones Industrial Average fell 4.0% and is down 6.1% for the month. The S&P Midcap 400 Index dropped 5.9% this week and is down 7.9% for the month. The Russell 2000 sank 6.8% this week and is down 8.9% for the month.

The losses mounted this week in the stock market for a variety of reasons. Rising market rates were at the top of the list. The 2-yr note yield spiked 36 basis points to 4.21% (having hit 4.26% at its high of the week) and the 10-yr note yield surged 25 basis points to 3.70% (having hit 3.82% at its high of the week).

Those moves were precipitated by central bank policy moves and a striking decision by the UK to announce its biggest tax cut in 50 years to stimulate growth while its central bank tries to battle inflation with rising interest rates.

The Fed was at the epicenter of the central bank decisions this week. The FOMC voted to raise the target range for the fed funds rate by 75 basis points to 3.00-3.25%, as many expected, and said it thinks ongoing increases in the target range will be appropriate.

That view was corroborated in the Summary of Economic Projections, which showed a median fed funds rate of 4.4% for 2022 (up from 3.4% in June) and a median fed funds rate of 4.6% for 2023 (up from 3.8% in June). The median rate for 2023 is 3.9%, implying that there is unlikely to be a rate cut in 2023.

Fed Chair Powell worsened the market's mood at his press conference, noting that his main message has not changed since his Jackson Hole speech: "Restoring price stability will require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy."

He added that he thinks the Fed will get to the 4.6% rate relatively quickly and that the moves by the Fed to get inflation back down to the 2% target are likely to cause pain since the rate hikes will inevitably contribute to a weakening in the labor market. The Fed Chair did not say it specifically, but if the price of getting inflation under control is a hard landing for the economy, then so be it.

In fact, a hard landing for the economy was a prominent concern for market participants this week. It led to broad-based selling, rooted in worries that there will soon be large cuts to earnings estimates. Accordingly, there was a reticence to pay up for stocks and an inclination to take risk off the table.

Losses for the 11 S&P 500 sectors ranged from 2.2% (consumer staples) to 9.0% (consumer discretionary). There was a trend of underperformance, however, in the more economically-sensitive parts of the market. The consumer discretionary sector fell 7.0%, the real estate sector declined 6.4%, the materials sector decreased 5.7%, the financial sector sank 5.6%, and the Philadelphia Semiconductor Index dropped 6.0%.

Other central bank moves this week included 50-basis point increases by the Bank of England, the Norges Bank, and the Bank of Indonesia. The Swiss National Bank, meanwhile, increased its key policy rate by 75 basis points to 0.50%, exiting a negative policy rate domain for the first time since 2015.

The Bank of Japan bucked the rate-hike trend. It kept its key policy rate unchanged at -0.1%, and Governor Kuroda said the bank does not expect to raise rates soon. Hoping to fend off a further weakening in the yen, Japan's Ministry of Finance intervened to support the yen for the first time since 1998.

That move was met with limited success given the exorbitant interest-rate differential that remains between the Bank of Japan and many other central banks, namely the Fed. The British Pound was another hot spot in the currency market. GBP/USD plummeted 3.5% on Friday to 1.0856, hitting a 37-year low, as traders did not take kindly to the UK's fiscal stimulus plan and understanding that it will require the issuance of more debt.

For the week, the U.S. Dollar Index surged 3.0% to 113.04.

There was no surge for the stock market, however. On Friday, the Dow Jones Industrial Average took out its June low (29,653.29) and the S&P 500 traded below its June closing low (3,666.77) while managing to hold above the intraday low on June 17 (3,636.87). 

On a related note, Goldman Sachs cut its year-end price target for the S&P 500 to 3,600 from 4,300 and said its sees downside potential to 3,150 in the event of a hard landing. That was one more item weighing on investor sentiment on Friday, and it helped to round out another losing week for the stock market.

• Dow Jones Industrial Average: -18.6% YTD

• S&P Midcap 400: -21.2% YTD

• S&P 500: -22.5% YTD

• Russell 2000: -25.2% YTD

• Nasdaq Composite: -30.5% YTD

Markert Recap - Inflation concerns fueled retreat

The Stock Market Started The Week On An Upbeat Note. Market Participants Had A Rosy Outlook For The Future Having Latched Onto The Peak Inflation, Peak Hawkishness, And Soft-Landing Narratives.

Upside momentum quickly fell to the wayside after the August CPI report gave market participants a reality check. It renewed concerns about persistently high inflation, an aggressive Fed rate-hike path, and a potential hard landing that would undercut current earnings estimates.

The reaction from both the stock market and the bond market was brutal. This marks the fourth losing week out of the last five weeks for stocks and Tuesday's sell-off was the fifth-largest point loss for the S&P 500 in history. By the end of the week, the S&P 500 fell below the psychologically important 3,900 level.

The outsized reactions were due to market participants knowing hotter-than-expected inflation data likely meant the Fed is going to stay on an aggressive rate-hike path. The Fed desperately wants to get inflation under control, and it has no interest in being the stock market's friend.

Following the CPI report, the fed funds futures market shifted noticeably. It priced out any expectation of a 50-basis point increase at the September 20-21 FOMC meeting. Instead, it now prices in a 100% probability of a rate hike of at least 75 basis points at the next meeting, according to the CME FedWatch Tool.

The 2-yr note yield, which is more sensitive to changes in the Fed funds rate, rose 28 basis points this week to 3.85%. The 10-yr note yield rose 13 basis points on the week to 3.45%.

Aside from the August CPI report, there was a slew of economic data to digest this week, including a better-than-feared August PPI report that did nothing to dissuade the sell-off. The August Retail Sales report, which didn't show a whole lot of vigor, was also in play for participants.

Adding fuel to the fire, several companies issued earnings warnings this week. FedEx being chief among them, which followed warnings earlier this week from Eastman Chemical, Nucor, and Arconic.

Following the warnings from the aforementioned materials companies, the S&P 500 materials sector was the biggest laggard on the week, closing down 6.7%.

The real estate and communication services sectors suffered the steepest losses after materials, closing down 6.5% and 6.4%, respectively.

Energy and health care were the "best" performing sectors this week, closing down 2.6% and 2.4%, respectively.

• Dow Jones Industrial Average: -4.1% for the week / -15.2% YTD

• S&P Midcap 400: -4.7% for the week / -16.3% YTD

• S&P 500: -4.8% for the week / -18.7% YTD

• Russell 2000: -4.5% for the week / -19.9% YTD

• Nasdaq Composite: -5.5% for the week / -26.8% YTD

Market recap - A SHORT WEEK THAT WAS LONG ON GAINS

The Stock Market Came Into This Shortened Week Of Trading On A Three-Week Losing Streak. It Looked On Tuesday As If That Streak Might Be Extended To Four Weeks, But There Was An Abrupt Turn In Sentiment That Powered A Strong Move In The Major Indices Over The Last Three Sessions.

When it was all said and done, the losing streak was broken and both the S&P 500 and Nasdaq Composite had reclaimed a posture back above their 50-day moving averages.

There were enough news catalysts during the week to knock the market lower.

For instance, China extended its lockdown of Chengdu, Russia said the shutdown of the Nord Stream 1 pipeline will be long lasting, blaming it on the sanctions imposed by Western nations, the Reserve Bank of Australia, Bank of Canada, and ECB all announced aggressive rate hikes, and another litany of Fed officials, including Fed Chair Powell, continued to emphasize the need to get inflation under control and that the Fed will stay at that job for as long as it takes.

Notwithstanding Tuesday's losing session, the stock market looked impervious to negative headline developments during the week.

It also overcame another bump in market rates, some jarring moves in the foreign exchange markets that were accented by dollar strength early in the week and dollar weakness in the latter part of the week, and a Wall Street Journal report that the Fed is likely on a path to raise the target range for the fed funds rate by 75 basis points at its September 20-21 FOMC meeting.

The yen fell to a 24-year low against the dollar this week, the euro hit a 20-year low, and the British pound saw its lowest level against the greenback since 1985.

The 2-yr note yield climbed 17 basis points this week to 3.57% while the 10-yr note yield jumped 12 basis points to 3.32%. Those moves came mostly on Tuesday with a flood of corporate issuance weighing on the market along with festering angst about the Fed stepping up efforts this month to reduce the size of its balance sheet.

Still, stocks did not buckle under the weight of rising rates nor the press for another aggressive rate hike. The resilience became its own bullish catalyst as it was deemed a sign that the market had already priced in the near-term rate hike.

The stock market also entered the week in a short-term oversold condition. With Tuesday's losses, the Dow, Nasdaq, and S&P 500 were down 9.1%, 12.4%, and 9.6%, respectively, from their August 16 highs. That understanding prompted some bargain-hunting efforts that accelerated late in the week after an American Association of Individual Investors Survey showed unusually high bearish sentiment and unusually low bullish sentiment.

Specifically, bearish sentiment among individual investors hit 53.3%, versus the historical average of 30.5%, and bullish sentiment slumped to 18.1%, versus an historical average of 38.0%. Those readings, and the large spread between the two, were regarded as contrarian indicators and sparked a propensity to buy/swing trade beaten-up stocks.

The mega-cap stocks stood out as leaders this week. The Vanguard Mega-Cap Growth ETF jumped 4.1%. Mega-cap stocks had plenty of company, however.

All 11 S&P 500 sectors registered gains for the week ranging from 0.6% (energy) to 5.6% (consumer discretionary). Eight sectors gained at least 3.2%. The Russell 3000 Growth Index was up 4.1% and the Russell 3000 Value Index increased 3.6%.

With the improved standing of the stock market, the CBOE Volatility Index fell 10.5% to 22.79.

There won't be any U.S. economic data of note on Monday, but Tuesday will feature the August Consumer Price Index. That will be a market mover in the coming week knowing that it will shape the market's perspective on the inflation trend and the Fed's potential response to it.

• Dow Jones Industrial Average: +2.7% for the week / -11.5% YTD

• S&P Midcap 400: +4.4% for the week / -12.1% YTD

• S&P 500: +3.6% for the week / -14.7% YTD

• Russell 2000: +4.0% for the week / -16.1% YTD

• Nasdaq Composite: +4.1% for the week / -22.6% YTD

Market Recap - Fear of Fed Fuels Third Straight Losing Week

This Week Included The End Of August And The Beginning Of September. Both Looked Roughly The Same, Which Is To Say Neither Was Good.

Stocks sold off Monday, Tuesday, and Wednesday. In doing so, the S&P 500 closed the month of August with a 4.2% loss. The Nasdaq Composite for its part was down all three days, too, and closed August with a 4.6% loss.

Thursday went marginally better for the S&P 500 and Dow Jones Industrial Average, but the Nasdaq extended its losing streak to five sessions on Thursday. That streak extended to six sessions on Friday after some concerning Nord Stream 1 pipeline news undercut a rebound effort that had been underway following an August employment report that was less strong than the July employment report.

The August employment report, however, was not weak. There were 315,000 jobs added to nonfarm payrolls, average hourly earnings were up 5.2% year-over-year, unchanged from July, and the unemployment rate ticked up to 3.7% (from 3.5%) on a higher participation rate. Nonetheless, there was a burgeoning belief after the report that it could compel the Fed to take a less aggressive rate-hike path at its September meeting.

The positive bias following that report was undone, however, when Bloomberg TV reported that Gazprom is going to keep the Nord Stream 1 pipeline shut down due to a "technical issue" that involves an oil leak. There was no timetable provided for when the pipeline might be reopened. That decision came shortly after G7 members agreed to implement a price cap on exports of Russian oil.

For the week, the major indices registered losses between 3.0-4.7%. It was the third straight losing week. The S&P 500, which kissed 4,325 on August 16, came within a hair of 3,900 before closing the week at 3,924.

The catalyst for a lot of the selling interest was a fear of the Fed that carried over from Fed Chair Powell's tough-minded policy speech in Jackson Hole. Cleveland Fed President Mester (FOMC voter) stoked that fear with an acknowledgment that she thinks the fed funds rate should be somewhat above 4.00% by early next year and that she does not anticipate there being a rate cut in 2023.

Her view was another reality check for the market that the Fed is not interested in being the market's friend right now. Instead, its aim is to be the enemy of inflation with rising interest rates and a reduction of its balance sheet. That approach is going to have adverse consequences for economic growth and will diminish earnings prospects.

That understanding has contributed once again to an inclination to sell into strength, which was present throughout the week along with rising Treasury yields and a strong dollar (the yen hit a 24-year low against the greenback and the euro fell below parity at 1.00).

Growth concerns were very much in the mix. Copper futures declined 7.9% this week to $3.40/lb and oil futures fell 6.4% to $87.09/bbl. They were driven lower partly by demand concerns that percolated after Chinese city Chengdu (21.2 million residents) was locked down for Covid testing. The materials sector (-5.0%) was the worst-performing sector this week along with information technology (-5.0%).

The latter was undercut by losses in its mega-cap components and a dismal showing from the semiconductor stocks, which got sideswiped by the news that the U.S. government informed NVIDIA (NVDA) that it is imposing a new license requirement for sales of its A100 and H100 chips to China and Russia. The Philadelphia Semiconductor Index declined 7.1%.

All 11 S&P 500 sectors finished lower for the week with losses ranging from 1.6% to 5.0%. The defensive-oriented utilities sector was the "best-performing" sector. Growth stocks saw the biggest hit this week with the jump in long-term rates, but value stocks also saw their fair share of selling. The Russell 3000 Growth Index declined 4.0% while the Russell 3000 Value Index dropped 3.0%.

The 2-yr note yield slipped one basis point for the week to 3.40% but the 10-yr note yield jumped 16 basis points to 3.20%.

As a reminder, U.S. markets will be closed Monday for the Labor Day holiday.

• DJIA: -3.0% for the week / -13.8% YTD

• S&P 400: -4.3% for the week / -15.8% YTD

• S&P 500: -3.3% for the week / -17.7% YTD

• Russell 2000: -4.7% for the week / -19.4% YTD

• Nasdaq Composite: -4.2% for the week / -25.7% YTD