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Markets Pull Back as Inflation Pressures Continue

Weekly Update – September 16, 2022

  • The S&P 500 index fell 4.8% last week, wiping out last week’s 3.6% climb, as investors were spooked by a report of higher-than-expected consumer price inflation in August as well as a profit warning by package delivery company FedEx (FDX).
  • The market benchmark ended the week at 3,873.33, down from last Friday’s closing level of 4,067.36. This marks the index’s fourth weekly drop over the last five weeks. It is now down 2.1% for the month to date and down 19% for the year to date.
  • The week included the largest one-day drop in the S&P 500 index since June 2020, coming Tuesday after data from the Labor Department showed US consumer prices unexpectedly edged higher in August versus July amid broad-based monthly gains, while core inflation accelerated more than expected, boosting expectations that the Federal Reserve would push forward with a more aggressive tightening cycle.
  • The data showed the consumer price index rose 0.1% in August on a monthly basis. This compared with a flat reading in July and an Econoday consensus estimate for a 0.1% drop. It also showed annual inflation advanced 8.3% last month, lower than an 8.5% jump in July, but higher than the Street’s view for an 8.1% increase.
  • Adding to investors’ worries later in the week, FedEx (FDX) preliminarily reported results for its fiscal Q1 ended Aug. 31 below analysts’ expectations and withdrew its fiscal 2023 earnings guidance. The company also disclosed cost-cutting measures after preliminary data showed a decline in global volume accelerated in the final weeks of the quarter.
  • All of the S&P 500’s sectors fell last week, with materials leading the way lower with a 6.7% drop. Other top decliners included real estate, down 6.5%, while communication services and industrials fell by 6.4% each and technology shed 6.1%.
  • Nucor (NUE) was the hardest-hit materials stock last week, tumbling 18% as the steel manufacturer said it expects fiscal Q3 earnings between $6.30 and $6.40 per share, down from $7.28 per share a year earlier and below analysts’ mean estimate at the time of $7.59. The downbeat guidance came as Nucor said its steel mills segment’s earnings for its fiscal Q3 ending Oct. 1 will be “considerably” lower than the prior quarter due to metal margin contraction and reduced shipping volumes.
  • The real estate sector’s decliners included shares of Weyerhaeuser (WY), as the owner of timberlands said a work stoppage involving members of the International Association of Machinists and Aerospace Workers union is impacting its operations in Oregon and Washington. Weyerhaeuser shares fell 11%.
  • Industrials were weighed down by FedEx’s warning, which included expectations for business conditions to weaken further in its fiscal Q2. “While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives,” FedEx CEO Raj Subramaniam said in a statement. Shares of FedEx lost 23% on the week.
  • In communication services, shares of Match Group (MTCH) shed 11% as Loop Capital downgraded its investment rating on the online dating company’s stock to hold from buy. This came after S&P lowered its outlook on the stock last week to stable from positive, citing weaker guidance.
  • In the technology sector, shares of Adobe Systems (ADBE) fell 24% last week as the software company reported fiscal Q3 revenue slightly below the Street consensus estimate and unveiled an agreement to acquire web-first collaborative design platform Figma for $20 billion in cash and stock. The stock’s decline also came amid several rating downgrades on Adobe last week from firms including Mizuho Securities, BMO Capital, and Oppenheimer.
  • Next week, all eyes will be on a meeting of the Federal Reserve’s policy-setting body, the Federal Open Market Committee. Housing data will also be in focus, with August building permits and housing starts scheduled for release Monday, followed by August existing home sales on Tuesday. On Friday, S&P Global will conclude the week with a release of its September readings on US manufacturing and services.
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