Market Update -September 23

The stock market had a mixed showing following Friday's sell-off. The major indices settled flat after pulling back from their highs of the day, following the trend of the mega cap stocks. The Russell 2000 was relatively weak, falling 0.7%.

The lack of conviction was driven by some hesitation ahead of the FOMC meeting on Wednesday.

Apple (AAPL) was a source of support for the major indices after reacting favorably to comments from analysts.

Ford (F), General Motors (GM), and Stellantis (STLA) were standout laggards after the UAW rejected a Stellantis offer to increase pay by nearly 21% over the contract term, with a 10% immediate increase.

Monday's economic data was limited to the NAHB Housing Market Index, which dropped to 45 in September (Briefing.com consensus 50) from 50 in August.

The major indices ended the day in negative territory, but closed well off their lows of the day, paced by the ebb and flow of the mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK) had been down 1.0% at its low before closing with a 0.2% loss. Other stocks, however, also improved in the afternoon trade.

An intraday pullback in crude oil, which topped $92.00/bbl earlier in the session, aided the afternoon recovery effort. WTI crude oil futures settled 0.04% lower at $90.49/bbl.

The overall negative bias was partially driven by hesitation in front of Wednesday's FOMC announcement, which will also feature an updated Summary of Economic Projections and dot plot.

Rising market rates acted as another headwind.

Instacart (CART) was an individual stock standout. The company priced its IPO at $30/share on Monday night, opened for trading at $42, but gave back a big chunk of that opening gain.

Tuesday's economic data was limited to housing starts, which hit their lowest level in August (1.283 million) since June 2020, and building permits -- a leading indicator -- which were up 6.9% month-over-month to a stronger-than-expected 1.543 million with permits for single units up 2.0%.

The stock market started the session with a positive bias as participants waited for the 2:00 p.m. ET release of the FOMC decision. The early upside moves were supported by falling oil prices and market rates. The Nasdaq had a modest loss in the early going, due to lagging mega caps, but the A-D line was positive and the other major indices were in the green.

Both the stock and bond market experienced volatile price action following the September FOMC Statement. As expected, the FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%. There were few changes to the directive itself, but the market was focused on the Summary of Economic Projections and dot plot, which conveyed two key takeaways: (1) Policy rates are anticipated to remain higher for longer and (2) Fed officials are not expecting to cut rates in 2024 as much as they were anticipating when they updated their forecasts in June.

The turbulent price action continued as Fed Chair Powell gave his press conference. Mr. Powell said several times that the Fed is going to "proceed carefully" when thinking about making a policy move, but said it's plausible that the neutral rate is higher than the longer run rate (2.5%), which he said is part of the explanation for why the economy has been more resilient than expected.

The wrinkle for the market wasn't that the Fed is decidedly hawkish at this point, it was that the Fed is still not dovish.

Stock settled into a steady decline in the late afternoon, led by the mega caps, that left the S&P 500 just above the 4,400 level.

Klaviyo (KVYO), which priced its IPO at $30, traded as high as $37 before pulling back with the rest of the market in the afternoon trade.

Reviewing Wednesday's economic data:

• The weekly MBA Mortgage Applications Index rose 5.4% with refinance applications jumping 13.0% and purchase applications increasing 2.0%.
• The weekly EIA crude oil inventories showed a draw of 2.14 million barrels versus last week's build of 3.96 million barrels.

The stock market had a downtrend day. The major indices were under pressure from the start, but faded to session lows in the late afternoon trade. The indices ultimately closed near those levels with losses ranging from 1.1% to 1.8%. The S&P 500, which closed just above 4,400 on Wednesday, spent the whole session below that level on Thursday. 

The biggest factor driving the weakness was the bump in market rates that started Wednesday afternoon in response to the Fed's hawkish hold.

Losses were broad based, led by the mega caps and growth stocks. The Vanguard Mega Cap Growth ETF (MGK) fell 2.0% and the Russell 3000 Growth Index fell 1.9%.

There were some standout winners that had specific catalysts to account for the relative strength on this otherwise downbeat day.

Paramount Global (PARA), Warner Bros. Discovery (WBD), and FOX Corp. (FOXA) logged gains after CNBC reported that a resolution to the Hollywood writers' strike may be reached soon.

Splunk (SPLK) was another top performer after news that it's being acquired by Cisco (CSCO) for $28 billion, or $157.00 per share, in cash.

Reviewing Thursday's economic data:

• Weekly Initial Claims 201K (Briefing.com consensus 225K); Prior was revised to 221K from 220K; Weekly Continuing Claims 1.662 mln; Prior was revised to 1.683 mln from 1.688 mln
  • The key takeaway from the report is that the low level of initial claims shows that the labor market is still operating in a tight mode, which is going to remain a basis for the Fed to keep operating with a restrictive interest rate mindset.
• September Philadelphia Fed Index -13.5 (Briefing.com consensus -2.0); Prior 12.0
• Q2 Current Account Balance -$212.1 bln (Briefing.com consensus -$222.0 bln); Prior was revised to -$214.5 bln from -$219.3 bln
• August Existing Home Sales 4.04 mln (Briefing.com consensus 4.10 mln); Prior 4.07 mln
  • The key takeaway from the report is that existing home sales continue to be crimped by a confluence of factors: higher mortgage rates and higher prices that are hurting affordability; limited supply; a lack of mobility due to remote work opportunities; and disinterest in moving by existing homeowners who are reluctant to give up a low-rate mortgage for a higher-rate mortgage.
• August Leading Indicators -0.4% (Briefing.com consensus -0.4%); Prior was revised to -0.3% from -0.4%

Friday's trade started on a upbeat note with the major indices all showing modest gains following this week's sell-off. The early positive bias was due in part to a buy-the-dip mentality, which was supported by the price action in the Treasury market.

The market started to decline coming out of the New York lunch hour. Downside moves were interrupted by a brief rebound effort, but the major indices ultimately settled near their lows of the day. The deterioration was attributed to San Francisco Fed President Daly (a 2024 FOMC voter), who reportedly echoed the new party line that the Fed may have some more tightening to do.

It is notable, however, that the 2-yr note yield, which is more sensitive to changes in the fed funds rate, didn't react much to Ms. Daly's acknowledgment. Technical factors may have played a bigger role in the afternoon slide after the S&P 500 was unable to clear initial resistance at 4,361, reaching a high of 4,357 on Friday.

The UAW confirmed reports that progress has been made on labor talks with Ford (F), but indicated that Stellantis (STLA) and General Motors (GM) are going to need "serious pushing." Consequently, the UAW extended its strike to all GM and STLA parts and distribution centers beginning at noon ET.

Friday's economic calendar featured the preliminary September S&P Global US Manufacturing PMI, which improved from August (actual 48.9; prior 47.9), but was still indicative of contraction (i.e. below-50 reading). The S&P Global US Services PMI, meanwhile, still reflected expansion, but fell to 50.2 in the preliminary September reading from 50.5 in August.