Market Watch: S&P 500 Tumbles as US Stock Markets React to Troubling Inflation News

The S&P 500 faced a turbulent September, closing with a monthly loss of 4.9%, marking its steepest decline since December of the previous year. 

The rollercoaster ride for US stocks continued until the end of the month, with investors closely monitoring the latest data from the Federal Reserve’s favored inflation gauge.

On the final trading day of September, the Dow Jones Industrial Average (DJIA) fell by 158.84 points, or 0.5%, closing at 33,507.50. 

Meanwhile, the S&P 500 (SPX) lost 11.65 points, or 0.3%, to finish at 4,288.05. 

The Nasdaq Composite (COMP) managed to edge slightly, gaining 18.05 points, or 0.1%, closing at 13,219.32.

The Dow fell by 1.3% for the week, the S&P 500 dropped 0.7%, and the Nasdaq Composite eked out a minimal 0.1% gain. 

These losses weren’t isolated to the week; all three major benchmarks incurred monthly and quarterly losses.

Investors grappled with uncertainty regarding the direction of the US economy. “Swinging back and forth” between the prospects of a recession and a ‘soft landing’ facilitated in part by Federal Reserve interest-rate hikes to combat inflation, investors found it challenging to determine the path ahead, according to Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Co.

September proved challenging for stocks, with the S&P 500’s 4.9% decline marking its worst performance since December. 

Despite some early morning gains in response to the latest inflation data, markets ultimately closed lower on the month’s last trading day.

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Inflation, Fed’s Actions, and US Stock Market Impact

The Federal Reserve’s preferred inflation gauge, the PCE (personal consumption expenditures) index, indicated a 0.1% increase in core prices in August, lower than expected. 

Nevertheless, the year-over-year inflation rate slowed to 3.9%. Rising energy prices contributed to a 0.4% increase in the headline PCE price index, its most significant rise in seven months.

On one hand, investors interpreted the data as a sign that the Fed’s aggressive campaign to combat inflation was working. 

Yet, the core PCE remained nearly double the Fed’s 2% target, leaving room for another rate hike possibility.

On the bright side, services inflation showed signs of cooling, with prices up 4.9% from the previous year. 

This development aligned with the Fed’s goals as it nears the end of its rate-hiking cycle.

Higher long-term yields added pressure to stocks throughout the month. The yield on the 10-year Treasury note fell slightly to 4.572%, though it remained near 16-year highs reached earlier in the month.

As September closed, repositioning portfolios heading into the fourth quarter was cited as contributing to the fading stock-market gains. 

The month-end adjustments and market volatility indicated that uncertainty might continue to affect investors as they navigate the economic landscape in the coming months.

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Source: Morning Star

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