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CHART OF THE WEEK: PANIC SELLING
Market sentiment is more bearish now than at March bottom…
WEEKLY SUMMARY
Rising interest rate fears and growth worries pushed the S&P 500 Index to its biggest decline since October 2020. US small caps and the Nasdaq declined the most. The Russell 2000 index had its worst week since June 2020. The Nasdaq index slumped roughly 7.5%, its biggest weekly drop since the start of the pandemic. Weakness in semiconductor shares weighed on technology stocks, while weakness in automakers and home improvement retailers dragged down the consumer discretionary sector. A more than 20% decline in Netflix shares following its fourth-quarter earnings report contributed to the indexes’ losses on Friday. Financial stocks JPMorgan Chase and Goldman Sachs were hard hit as well. Shares in Europe ended lower, as expectations grew that the ECB would raise interest rates this year. In Fixed Income, the US jobs data appeared to result in the flattening of the Treasury yield curve. The US 10-year yield hit 1.90% on Wednesday—its highest level since late 2019—but fell back sharply in the wake of Thursday morning’s weaker-than-expected jobless claims report. The dollar ended the week higher - its best week in the last 5. Cryptocurrencies collapsed as Bitcoin hit $35k and Ethereum $2,500.
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U.S. stocks declined during the week, although a rally on Friday helped major indexes recover some of their lost ground. Losses were broad-based, though smaller-cap indexes generally fared worst. The Fed’s rate cut announcement on Wednesday (25bps) was largely expected. However, sentiment turned negative as investors digested hawkish forecasts and commentary from Fed officials regarding the path forward for interest rates. The hawkish tone helped drive the S&P 500 Index lower by nearly 3% for the day, its second-worst day of the year. Political uncertainty in the form of a looming government shutdown also seemed to rattle investor confidence. In economic news, the U.S. Real GDP grew 3.1% in Q3, outpacing a previous estimate of 2.8%, partially owing to increases in consumer spending.