Stocks On Pace For First Consecutive Monthly Decline This Year

Key Takeaways

• Can End Of Quarter Buying Come Through And Help Markets
• Looming Government Shutdown
• Personal Consumption Expenditures Data Later In The Week

It’s been a rough couple months for investors. Since hitting highs back in July, the S&P 500 and Nasdaq Composite have pulled back 6% and 8.5%, respectively. On Friday, the S&P 500 dropped 0.2%, capping off its worst week since March. The Nasdaq Composite fell just 0.1% but has been down three consecutive weeks. If either index closes lower this week, it will mark the first time this year we’ve had consecutive down months.

This market has been largely propelled by just a handful of stocks, or the “Magnificent 7.” However, even those companies have struggled of late with six out of seven closing lower last week. Only Facebook parent, Meta, managed to close higher.

Stocks are looking at some potential headwinds as we wrap up the quarter. While it’s not uncommon to see some buying pressure at quarter’s end, this week has some potential pitfalls. First, we’re going to get some important economic data points on housing, durable good and then on Friday, the most recent Personal Consumption Expenditures (PCE) report.

The Federal government is also facing the increasing likelihood of shutdown as Congress remains divided on spending. A failure to reach agreement by midnight, October 1^st, would result in a large number of government employees being furloughed. The economic impact of a shutdown will be made worse as October 1^st is also when student loan repayments resume after being suspended back in March of 2020. The resumption of payments has already led to Jefferies downgrading Footlocker and Nike
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as consumers will be left with less discretionary income to be spent on boutique retailers. Shares of Footlocker are down 3% premarket along with Nike, who’s down 1.5%.

There are a few other stocks to keep an eye on this week. Costco, Micron Technology
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, Nike and Carnival Cruise Lines are all scheduled to report earnings throughout the week. I’m also keeping an eye on shares of both Instacart and Arm Holdings. Both companies recently when public but have thus far had rather lackluster performances. Instacart closed Friday at $30 per share, below its IPO of $31. Meanwhile, shares of Arm Holdings closed at $51.32, just above its IPO price of $51. The relative lack of enthusiasm for new issues is a bit discouraging. Strong demand for new issues could be a bullish sign; however, with both stocks trading at or below their IPO price, other companies that were considering going public may hold off and a healthy IPO market is usually a very bullish sign. The one positive of this might be it also discourages some weaker companies from going public.

While the United Auto Workers (UAW) strike continues, there was good news overnight for the Writers Guild of America (WGA). The WGA and top entertainment companies reached a tentative deal that, if approved, would end the Hollywood dispute. However, the agreement does little to help resolve the actors strike. Actors and entertainment companies continue to remain far apart on a deal. The positive WGA news has helped boost stocks such as DIS and NFLX in premarket trading.

Finally a couple other odds and ends worth watching. Interest rates continue to push higher. Rates on 2, 10 and 30 year bonds were all higher last week and are up again this morning. One silver lining might be that rates on longer duration bonds increased at a faster rate than short term bonds, helping to steepen the yield curve. Prices of crude oil, which have been flirting with $90 per barrel are trading just below that level in premarket. Lastly, market volatility is higher in premarket by nearly 6%. The VIX is currently at 18, which isn’t too surprising given the confluence of a looming government shutdown, resumption of student loan debt payments and significant economic reports scheduled throughout the week. As always, I would stick with your investing plans and long term objectives.

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