Title: Market Ends the Quarter on a Sour Note, PCE Inflation Inched Up
Date: June 27, 2022
The New York Stock Exchange (NYSE) witnessed a turbulent end to the quarter as U.S. stocks closed on a mixed note on Friday, with the Nasdaq Composite being the only major index to show a slight increase. Despite this, all indexes recorded a decline for the quarter, signaling a challenging period for the markets.
Meanwhile, Europe’s Stoxx 600 managed to add 0.38% on Friday, but it also experienced a 2.9% decrease for the quarter, marking its worst quarterly performance in a year. Adding to the concerns, flash estimates revealed that eurozone inflation dropped to 4.3% in September, reaching its lowest annual figure since October 2021.
In terms of the U.S. economy, the personal consumption expenditure (PCE) index for August showed a 3.5% year-on-year increase and a 0.4% increase for the month. However, after excluding food and energy, core PCE only rose by 3.9%, a figure lower than anticipated, and had the smallest monthly increase since November 2020. The PCE is closely monitored by the Federal Reserve as it provides a comprehensive measure of inflation based on consumer behavior rather than just prices.
Over the weekend, the U.S. Senate passed a last-minute spending bill, narrowly avoiding a government shutdown. However, the bill only provides temporary funding for another 45 days, allowing lawmakers to continue negotiations on a more permanent funding legislation. Notably, the bill does not include new funding for Ukraine’s ongoing war with Russia.
In the automotive industry, the United Auto Workers union expanded its strikes on Friday, affecting additional Ford and GM plants. Approximately 6,900 autoworkers have now joined the ongoing strikes, joining the roughly 18,300 workers already on strike. However, Stellantis was spared from additional strikes due to reported progress in negotiations with union members.
Looking ahead, the focus this week will be on the labor market as several key reports are scheduled to be released. The Job Openings and Labor Turnover Survey for August, set to be published on Tuesday, will provide insights into the number of workers voluntarily leaving employment, which is considered a significant indicator of employee confidence in finding new jobs. Additionally, the September jobs report on Friday will shed light on whether the job market remains tight, as recent data on jobless claims have suggested.
Despite a lower-than-expected core PCE reading, which saw only a 0.1% increase for the month, market sentiment remained subdued. The S&P 500 fell by 0.27%, the Dow Jones Industrial Average declined by 0.47%, while the Nasdaq Composite managed a modest gain of 0.14%.
Overall, all three major indexes closed September in the red, with the S&P 500 down by 4.87% and the Nasdaq falling by 5.81%, which marked their worst monthly performance since December. Similarly, the Dow Jones lost 3.5%, representing its weakest showing since February.
Reviewing the quarter as a whole paints a slightly better picture, demonstrating just how challenging September was for the markets. The S&P 500 retreated by 3.65%, the Dow declined by 2.62%, and the Nasdaq sank by 4.12%, representing its sharpest fall since the second quarter of 2022.
Analysts have highlighted the increasingly oversold condition in the market, with only 15% of stocks currently trading above their 50-day moving average. Observers suggest that while being oversold does not guarantee a bounce-back, it does indicate that stocks are relatively cheap compared to their recent price range, potentially making it easier for them to recover.
October, historically a winning month for stocks, may offer some relief from the challenging market conditions. The Stock Trader’s Almanac data reveals that, on average, the S&P 500 has recorded a 0.9% increase in October between 1950 and 2021. Investors will be hopeful that October brings respite to the volatility and uncertainty experienced during the scorching summer months.