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Stocks See Gains in the First Week of the 4th Quarter, as Investors Anticipate Slowing of Rate Raises

Weekly Update – October 07, 2022

  • The S&P 500 index rose 1.5% last week, kicking off the final quarter of 2022 in positive territory following three weeks of declines.
  • The slight weekly advance came as gains booked earlier in the week on hopes for rate increases to start slowing managed to more than offset a slide posted later in the week as stronger-than-expected September jobs data seemingly dashed those hopes.
  • The S&P 500 ended Friday’s session at 3,639.66, up from a closing level of 3,585.62 a week earlier when the market benchmark ended September with a 9.3% monthly drop and a 5.3% Q3 decline. The S&P 500 is now down nearly 24% year-to-date.
  • The US stock market’s September slide came amid concerns about inflation, monetary tightening and the effects on global economic growth. Global central banks have been raising lending rates in an attempt to combat inflation, yet prices have remained elevated. Meanwhile, with Q3 earnings reports approaching, some companies have been warning investors about the negative impacts of higher costs on their profitability.
  • Stocks, however, posted strong gains earlier last week as investors grew hopeful for central banks to start slowing the pace of their rate increases. These hopes came as the World Trade Organization cut its forecast for global economic growth in 2023 and warned that the global economy could experience a more significant slowdown if central banks raise interest rates too sharply. Also, a US Labor Department report showed US employers’ job openings fell by 10% in August while layoffs rose.
  • Investors were hoping slowdowns in the economy and labor market could be signs the rate increases are already working and could prompt central banks to slow the pace of future rate increases.
  • However, September jobs data in the US, released Friday, showed nonfarm payrolls rose by 263,000 last month, slightly ahead of the 250,000 jobs increase expected in a survey compiled by Bloomberg. The unemployment rate, which had been expected to have no change from August, unexpectedly improved to 3.5% in September from 3.7% in August.
  • The S&P 500 fell 2.8% on Friday as the stronger-than-expected jobs data prompted investors to resume expectations for the Federal Open Market Committee to keep up a more aggressive pace of rate increases.
  • Despite the Friday losses, seven of the S&P 500’s 11 sectors still ended the week in positive territory versus last Friday. The energy sector posted the strongest advance with 14% climb, followed by a 2.9% increase in industrials and a 2.1% rise in materials.
  • The four declining sectors were led by real estate, which fell 4.2%, followed by a 2.6% decrease in utilities, a 1.1% decline in consumer discretionary and a 0.4% slip in consumer staples.
  • The jump in the energy sector came as crude-oil futures climbed amid an agreement for a production cut by the Organization of the Petroleum Exporting Countries and its Russia-led allies. The agreement is for output to be slashed by 2 million barrels of oil a day. Gainers included Marathon Oil (MRO) and APA (APA), whose shares surged 24% each.
  • In the industrial sector, gainers included United Rentals (URI), whose shares rose 5.3%. The equipment rental company said it has agreed to buy electric dumpsters from JCB for its North American rental fleet. The company said it expects to offer the electric dumpsters to customers in Q4.
  • On the downside, the decliners in real estate included Welltower (WELL) as RBC Capital Markets cut its price target on the health-care infrastructure company’s stock to $79 per share from $96 while also lowering its earnings estimates for the company, citing higher interest rates and foreign-exchange moves. Shares of Welltower shed 8.9%.
  • Next week, the Q3 earnings reporting season will kick off with reports expected from companies including Wells Fargo (WFC), Delta Air Lines (DAL), JPMorgan Chase (JPM), Morgan Stanley (MS), Citigroup (C) and UnitedHealth Group (UNH).
  • Economic reports expected to receive attention next week include the September consumer price index on Thursday and September retail sales on Friday.
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