The S&P 500 Drops for a Third Consecutive Week

U.S. stock indexes concluded a challenging week with marginal declines, as concerns arose following the Federal Reserve's indication that it might continue raising interest rates. The S&P 500 experienced a 0.2% decline on Friday, marking a 2.9% weekly downturn, its most significant drop since March and the third consecutive weekly decline. Similarly, the Nasdaq Composite dipped by 0.1% on Friday and posted its third consecutive week of losses, with the technology sector bearing the brunt of the recent market downturn. The Dow Jones Industrial Average also closed 0.3% lower.

‍

Treasury yields, after reaching a 15-year high on Thursday, saw a slight decline. The yield on the 10-year bond retreated from 4.479% to 4.438% on Friday.

‍

The uptick in yields followed the Federal Reserve's meeting earlier in the week, during which Chair Jerome Powell left the possibility of another interest rate hike open and stated that the central bank anticipates maintaining higher rates for a more extended period to manage inflation effectively.

‍

Art Hogan, Chief Market Strategist at B Riley Wealth Management, expressed concerns, stating, "The fear is that stronger-than-expected growth will force the Fed to maintain its restrictive stance for some time."

‍

The prolonged anticipation of higher interest rates has prompted investors to evaluate the impact of elevated borrowing costs on both consumers and businesses. Additionally, higher bond yields can make riskier assets such as stocks appear comparatively less appealing, leading to a risk-off sentiment among investors. Data from LSEG Lipper indicated that U.S. investors withdrew $16.8 billion, primarily as net sellers of mutual funds and exchange-traded funds during the week ending Wednesday, partly attributed to the hawkish comments from the Federal Reserve.

‍

Tom Roseen, Head of Research Services at LSEG Lipper, noted, "Hawkish Fed comments pushed investors to the sidelines."

‍

The conflicting nature of economic reports has compounded the uncertainty regarding the Federal Reserve's future actions. The Labor Department reported initial jobless claims below analyst estimates on Thursday, suggesting a resilient job market. In contrast, S&P surveys on Friday indicated a slowdown in economic momentum towards the end of summer, with an index tracking the U.S. services sector dropping to an eight-month low.

‍

James St. Aubin, Chief Investment Officer at Sierra Mutual Funds, emphasized the challenge presented by these mixed signals, stating, "Mixed economic signals continue to befuddle central bankers and market participants alike, making it difficult for investors to make decisions."

‍

Financial technology companies faced headwinds during the week, primarily due to rising yields, which increased their borrowing costs and squeezed profit margins. Notably, Affirm, a buy-now-pay-later company, witnessed a 17% weekly decline, while competitor Block dropped 15% to a three-year low, and PayPal shares fell by 10% over the week.

‍

In contrast, Ford Motor shares displayed resilience, rising by 1.9% on Friday, following progress in contract talks with the United Auto Workers union, which averted further walkouts. Ford emerged as one of the top performers within the S&P 500 index.

‍