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.
Source: Briefing Investor