S&P 500 Declines Following Release of US Inflation Figures, Concluding a Lackluster Third Quarter

30 Sep, 2023

S&P 500 Declines Following Release of US Inflation Figures, Concluding a Lackluster Third Quarter

The S&P 500 saw a decline on Friday as investors assessed the implications of the latest U.S. inflation report for the Federal Reserve's interest rate policy. They also made adjustments to their portfolios as the weak third quarter for stocks came to a close. In a noteworthy development, both the S&P 500 and Nasdaq experienced their largest monthly percentage drops of the year, while all three major indexes reported their first quarterly declines in 2023.

The data revealed that the personal consumption expenditures price index, which excludes the volatile food and energy components, increased by 3.9% on an annual basis for August. This marked the first time in over two years that it had fallen below the 4% threshold. It's important to note that the Federal Reserve closely tracks the PCE price indexes as part of its strategy to achieve a 2% inflation target.

Initially, stocks showed gains following the release of the PCE report, but this momentum quickly faded. Eric Freedman, Chief Investment Officer at U.S. Bank Asset Management, characterized the data as a "better than expected but still elevated inflation picture."

Freedman also pointed out, "we are at quarter end, and with quarter end comes all sorts of activities across both the stock and bond markets."

In terms of numbers, the Dow Jones Industrial Average dropped 158.84 points, or 0.47%, to 33,507.5, the S&P 500 lost 11.65 points, or 0.27%, to 4,288.05, while the Nasdaq Composite gained 18.05 points, or 0.14%, reaching 13,219.32.

Within the S&P 500 sectors, energy experienced a significant slump of about 2%, and financials also declined by 0.9%. Notably, energy remained the top-performing sector for the third quarter. Eric Freedman explained, "Energy and financials have been up on a relative basis and they are feeling some rebalancing effect today."

For the quarter, the S&P 500 declined by approximately 3.6%, the Dow lost 2.6%, and the Nasdaq shed 4.1%. In September alone, the S&P 500 reported a 4.9% drop, the Dow fell 3.5%, and the Nasdaq declined by 5.8%.

The release of the PCE data came on the heels of last week's hawkish long-term outlook for interest rates from the Federal Reserve. This outlook had a ripple effect on the stock market, leading to a rise in benchmark Treasury yields to 16-year highs. Paul Nolte, Senior Wealth Advisor and Market Strategist for Murphy & Sylvest Wealth Management, noted that "equity investors are finally waking up to the Fed and the Fed's comments that it is going to be higher for longer, and there is an alternative to stocks."

Investor attention was also directed toward Washington, where hardline Republicans in the U.S. House of Representatives rejected a bill proposed by their leader to temporarily fund the government. This made it highly likely that federal agencies would experience a partial shutdown starting on Sunday.

Traders remained cautious about a $16 billion JP Morgan fund that was expected to reset its options positions on Friday, potentially adding to market volatility.

In company news, Nike shares surged by 6.7% after the world's largest sportswear maker exceeded Wall Street estimates for first-quarter profit.

Overall, declining issues outpaced advancers by a ratio of 1.2-to-1 on the NYSE, with 54 new highs and 142 new lows reported. On the Nasdaq, advancing issues slightly outnumbered decliners with a ratio of 1.1-to-1, and the Nasdaq recorded 46 new highs along with 168 new lows.

Trading activity was brisk, with approximately 11.3 billion shares changing hands in U.S. exchanges, surpassing the 10.4 billion daily average over the last 20 sessions.