Fed Hammers Stocks to a Key Level as the Quarter Winds Down

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Stocks are headed for a losing quarter after hawkish policy from the Federal Reserve hammered prices to a key level.

The S&P 500 fell 2.9 percent between Friday, September 15, and Friday, September 22. It was the index’s third straight losing week and its biggest drop since March. Nine of ten member companies lost value. Treasury yields shot to their highest levels in almost 15 years.

The Fed predicted its target rate will average 5.1 percent in 2024. That hurt stocks because it’s 50 basis points higher than their estimate in June and 75 basis points higher than March. Still, the terminal rate for this year and the current level didn’t change.

“Economic activity has been stronger than we expected, stronger than I think everyone expected,” Chairman Jerome Powell said in his press conference. “The process of getting inflation sustainably down to 2 percent has a long way to go.”

Biggest Gainers in the S&P 500 Last Week
Cboe (CBOE)+5.3%
Humana (HUM)+4.9%
Allstate (ALL)+4.9%
Assurant (AIZ)+4.6%
McKesson (MCK)+4.4%
Source: TradeStation Data

Housing data was negative last week as builder sentiment and existing home sales missed estimates. High mortgage rates continue to weigh on activity. Initial jobless claims also fell to their lowest level since January, boosting interest-rate fears.

Every Sector Falls

Consumer discretionary stocks, which are sensitive to interest expense and the economy, were the worst-performing sector last week. Tesla (TSLA) dropped 11 percent. Amazon.com (AMZN) slid 8 percent after announcing plans to hire 250,000 people before the holidays.

Real estate stocks and banks also fell sharply as interest rates increased.

Health care, utilities and consumer staples declined the least. They’re typically considered safe havens.

S&P 500, weekly chart, showing key levels. Cboe’s Volatility Index is in the lower study.

Charting the Market

Last week’s selloff landed the S&P 500 near its peak in August 2022. It managed to bounce at the same level in late June and last month. That could have initially meant old resistance became new support. However, some traders may worry to see it revisited so quickly. Further downside from here could signal a longer-lasting correction.

Biggest Decliners in the S&P 500 Last Week
Caesars Entertainment (CZR)-13%
Moderna (MRNA)-13%
MGM Resorts (MGM)-11%
Alexandria Real Estate Equities (ARE)-11%
Ceridian HCM (CDAY)-11%
Source: TradeStation Data

The index is on pace for its second consecutive negative month, which last happened in August and September of 2022. It’s also headed for its first negative quarter in the last year.

The 10-year Treasury yield reached 4.49 percent after the Fed meeting, its highest reading since October 2007. Long-term charts may suggest the next potential level is around 5.25 percent, where yields peaked in July 2006 and June 2007.

Traders may also watch Cboe’s volatility index (VIX), which tends to move in the opposite direction as stocks. The VIX remains below peaks from earlier in the year. Further increases could potentially weigh on stocks.

The Week Ahead

This week marks the end of the third quarter. It has a few economic releases and speeches by Fed officials. News on the autoworker strike and potential government shutdown could impact sentiment. Meta Platforms (META) also holds an Artificial Intelligence (AI) developer conference on Wednesday and Thursday.

Nothing important is scheduled for today.

Consumer confidence and new home sales are tomorrow. Costco (COST) issues results in the afternoon and Fed Governor Michelle Bowman speaks.

Durable goods orders and crude oil inventories are on Wednesday. Micron Technology (MU) reports earnings in the post market.

Thursday brings the final revision of second-quarter gross domestic product and initial jobless claims. Chairman Powell and Lisa Cook of the Fed deliver speeches. Nike (NKE) earnings are also due.

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