It was a tough week for professional investors and investors just trying to save enough for retirement.
The major averages suffered their worst percentage losses since early March, buffeted by rising interest rates, rising oil prices, an auto workers strike against the biggest U.S. automakers, and the distinct possibility much of the federal government will shut down in early October.
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Next week brings some important economic reports, including new-home sales and consumer confidence that will shed light on the seriousness of the issues.
Plus, there is a key earnings report after Tuesday's close from big-box retailer Costco Wholesale (COST) -). Results should be strong, analysts believe, justifying the 22.4% year-to-date gain the shares show. A key part of Costco's presentation will be what customers are telling them about themselves and the economy.
If those reports are decent and the United Auto Workers' strike and a government shutdown are either short-lived or signal they won't last too long, stocks could get a decent bounce.
That's because stocks have fallen so far in roughly two months that many analysts see the selling as overdone. And rebounds from sharp slumps also tend to be sharp.
The market stall hasn't eased
The market has slowly been working its way lower since hitting a near-term high in late July and early August. This past week saw some nasty days — days when stocks open higher, only to fade toward the close as interest rates and oil and gasoline prices kept climbing.
The S&P 500 Index (^IN) -) fell 2.9%. The Dow Jones industrials (^DJI) -) dropped 1.9%, and the Nasdaq Composite Index (^COMPX) -) slid 3.6%. The losses for the S&P 500 and Nasdaq were their third straight weekly declines.
Crude oil was trading in the $90-range, and there was talk of $150-a-barrel prices. The U.S. national average retail price of gasoline was just under $4 a gallon. (Much higher on the West Coast, lower in the Deep South.)
Energy (along with utilities) are the leading S&P 500 sectors so far in September.
The stock-market losses are part of a pullback since the end of July. The Dow is off 4.7% from its summer high. The S&P 500 has shed 5.9%, and the Nasdaq has fallen nearly 8%.
Higher rates have weighed on home buying, home building, auto sales, mergers and acquisitions, and the billions more the federal government has to pay in interest on U.S. debt. The 10-year Treasury yield at about 4.6% was at its highest level since 2007.
Higher oil prices translate into higher fuel prices and function essentially as a consumer tax.
Adding to the pain have been continuing tensions over the Ukraine-Russia War, tensions between the United States and China, hurricane damages and the possible government shutdown.
Tesla and Nike shares have struggled
The losses for the week were broad. Each of the 11 S&P 500 sectors fell on the week. The smallest loss was in the healthcare sector, down 1.2%.
For the month, only energy and and utility stocks are ahead.
A number of big stocks were notable losers.
Tesla (TSLA ) -)fell 10.8% last week alone, in part because third-quarter production and delivery results were lower than expected. Apple (AAPL) -), off slightly for the week and nearly 7% for the month, has been struggling for two months because of worries about the key China market.
Microsoft (MSFT) -) fell 4% in part because of concerns about the health of key markets, including video games and productivity software. Nike (NKE) -) fell 5.6% because of worries about global markets.
If this sounds like a formula for more market declines, you wouldn't be far off.
But markets could, maybe, move higher. Here's how.
A key question is how long the Federal Reserve keeps rates at elevated levels. The Fed's key federal funds rate is 5.25% to 5.5%.
The rate is the foundation of nearly all U.S. interest rates. It's why the yield on 10-year U.S Treasury bonds are roughly 4.5% and the U.S. 30-year mortgage rate is stuck at just under 7.2%.
The short answer on the how long question appears to be well into 2024, if Chairman Jerome Powell's comments at his Wednesday news conference are any indication. (The stock slump after Wednesday reflected Wall Street's dismay rates are not yet headed lower.)
Two more key questions: What would a government shutdown do? If the UAW strike can't be settled, what are the risks?
In both cases, the risks are to the downside. A shutdown would effect just about every community in the United States and would feel like a sore burning.
That said, a shutdown would not include not all of the government. The armed forces and the Social Security Administration would be among those that would continue to operate.
The auto strike, meanwhile, would also affect most of the country as well. But its biggest impacts would be in the Midwest and Great Lakes regions.
That said, three factors could make bulls happier.
First, Saudi Arabia and Russia really want to see oil prices move sharply higher and are pulling crude off the global market. And one hears Wall Street analysts toss around the idea of $150-a-barrel.
But the end of the week saw crude-oil prices suddenly reverse. As if some traders believed it was time to ease the price pressure.
Second, retail gasoline prices have fallen for six straight days, according to the Automobile Association. Not a lot, but a trend seems to be emerging. The U.S. national average Sunday was $3.847 a gallon, down from a 2023 peak of $3.881 a gallon on Sept. 18.
Third, stocks look greatly oversold to a number of market technicians. Meaning prices went up so far so fast into this summer that a sharp sell-off became inevitable.
Consider relative strength indexes, a measure of momentum. If the RSI of a stock or an index tops 70 to 75, it's vulnerable to abrupt and hard selling. If it nears 30 or falls below, a rebound is getting ready. The RSIs for the Dow, S&P 500 and Nasdaq were at 35 or lower on Friday after topping 70 in June and July.
All stocks need to pop up is a good catalyst. Perhaps this week? Though October seems more likely.
