Stocks end September in losses, but S&P 500 slumps quarterly earnings

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A sell-off in cyclical company stocks drove major indices lower on Thursday, crowning a tumultuous September that marked the S&P 500’s worst month since March 2020.

All three major US indices ended the day in the red after a troubled session. Stocks started the day on a jump but then quickly jiggled and turned negative, with losses accelerating in the last few minutes of trading. The Dow Jones Industrial Average fell 546.80 points, or 1.6%, to finish at 33,843.92, weighed down by losses at companies ranging from machine giant Caterpillar to home improvement retailer Home Depot.

The S&P 500 lost 51.92 points, or 1.2%, to finish at 4307.54. The Nasdaq Composite lost 63.86 points or 0.4% to 14448.58 points.

After a long spell of gains for the US stock market this year, September was the month when investor fear finally escalated and pushed all three major indices down. The S&P 500 plunged 4.8% in September, its biggest monthly drop since March 2020 when the coronavirus pandemic sparked a sell-off. The Dow Jones Industrial Average lost 4.3% in September while the Nasdaq fell 5.3%.

Despite the slump, the S&P 500 managed to gain 0.2% in the quarter, making it the sixth quarter in a row. The Nasdaq and Dow, meanwhile, ended the period lower and posted their first quarterly losses since the first three months of 2020.

Investors have overcome more uncertainties recently, including concerns that higher inflation – driven in part by supply chain issues – will last longer than expected. Fears of contagion from debt-laden real estate developer China Evergrande Group, as well as data showing that US economic growth is starting to slow, have also made markets tenacious lately.

The ongoing scramble in Washington has also weighed on investors’ minds. Congress passed a bill on Thursday extending government funding until December 3rd.

The combination of all of these factors was enough to break the US stock market’s winning streak in September 2021. The S&P 500 is now 5.1% lower than its last closing record on September 2nd. The index also closed below its 100-day moving average for the first time since November 2020 on Thursday.

“We have entered a slightly tougher, quirky period of recovery and there are a number of headwinds against the uptrend we have seen since last year,” said Sebastian Mackay, multi-asset fund manager at Invesco.

Last week, the Federal Reserve signaled that it would begin reducing bond purchases as early as November and possibly hike rates next year. The expectation of interest rate hikes and higher inflation, which is also reflected in rising oil and commodity prices, has led some investors to sell government bonds whose yields have been at historically low levels.

The sell-off cooled on Thursday and the benchmark ten-year Treasury bond yield fell to 1.528% from 1.540% on Wednesday. Returns and prices move in opposite directions.

Many asset managers expect that volatility in the stock markets will not necessarily ease with the start of a new quarter on Friday. But with returns still trading at historically low levels, many acknowledge that few places outside of the stock market can make consistent, desirable profits. Even with the September slump, the S&P 500 is still up about 15% year-to-date.

“People realize that stocks are the only asset with real expected returns. The market seems to be dragging higher in this alternative environment, ”said Edward Park, chief investment officer at UK investment firm Brooks Macdonald. “This will not last if the central banks make it clear that they are raising interest rates regardless of the growth background.”

Investors have sold stocks of big tech companies.


Photo:

brendan mcdermid / Reuters

Looking ahead to the fourth quarter, some strategists and investors expect cyclical and small-cap stocks to outperform, especially as rising bond yields dampen the glitz of growth stocks. Stocks of growth companies, including big tech stocks, tend to perform better in low-yielding environments, as investors have more incentives to buy stocks and expect higher profits in the future.

“We’re seeing history repeat with another strong fourth quarter, led by small-caps and value like last year,” said Ryan Detrick, chief market strategist at LPL Financial.

However, on Thursday, many growth stocks outperformed while financial, industrial and consumer staples suffered. Netflix was up $ 11.28, or 1.9%, to finish at $ 610.34, while Advanced Micro Devices was up $ 2.55, or 2.5%, to $ 102.90.

Stocks in companies from Alaska Air Group to building materials supplier Martin Marietta Materials,

however, withdrew, with both losing more than 3%.

On corporate news, Virgin Galactic Holdings’ shares rose $ 2.74, or 12%, to close at $ 25.30 after the leading U.S. aviation security agency announced it had re-approved the company to conduct space flights. Bed Bath & Beyond shares fell $ 4.93, or 22%, to $ 17.27 after the retailer cut its annual forecast as it reported slower traffic in its stores due to the Delta variant and supply chain challenges .

Brent crude futures, the benchmark in international energy markets, fell 0.2% for the day to $ 78.52 a barrel.

Overseas, the pan-continental Stoxx Europe 600 closed almost unchanged and recorded a decline of 3.4% over the course of the month. The index ended the quarter higher.

The indices in Asia closed with mixed performance. The Chinese Shanghai Composite gained 0.9% over the course of the day and rose 0.7% over the month. Hong Kong’s Hang Seng fell 0.4% in daily trading, increasing its monthly losses to 5%. Concerns about Chinese growth and the resilience of the property sector weighed on global sentiment this quarter.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com.

Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8


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