Roller coaster ride on Wall Street

The roller-coaster ride continued in financial markets, with sharp swings rocking major equity indexes. U.S. stocks started the week with steep declines. The S&P went down to the key 3,500 level, a 50% retracement from the March 2020 Covid low of 2,237 and the January 2022 high of 4,797, before recouping its losses Thursday. It even ended the day with significant gains. Yet inflation was running hotter than expected in September. The consumer price index (CPI) rose 8.2% over the last 12 months. Furthermore, the University of Michigan survey showed that the expected year-ahead inflation rate rose to 5.1% in early October, above the 4.7% reported in September. A climb in inflation expectations is a daunting challenge for the central bank. With no sign of a slowdown in price pressures, a vast majority of traders expect the Fed to lift interest rates by 0.75% for the fourth time in a row next month.

Against this backdrop, there was no follow-through day. The S&P 500 and the tech-heavy Nasdaq composite plunged again on Friday, finishing the week in negative territory. They wiped out the previous week’s gains. 

The S&P 500 dropped 1.55% (-24.82% year-to-date). The Nasdaq sank 3.11% (-34.03% for the year). By contrast, the Dow managed to stay in the green, up 1.15% week-over-week (-18.45% YTD). The CBOE Volatility Index (VIX) closed a bit higher at 32.02, after hitting 34.29 earlier in the week.

Stocks in the eurozone were flat (MSCI EMU up 0.02%, down 22.97% YTD) while the FTSE slid 1.89% (down 7.12% YTD). In Asia, Japan’s Nikkei treaded water (down 0.09% WTD, down 5.91% YTD) while the Shanghai Composite bucked the trend (up 1.57% WTD, down 15.60% YTD).

Consumer Staples in the limelight    

Only three S&P sectors closed above the flatline. Consumer staples led the pack (+1.45% over the week), supported by PepsiCo stocks (“PEP”), up 5.31%, after the food and beverage giant announced better-than-expected Q3 results and good outlook for 2022. Among defensive sectors, healthcare also landed on the podium (up 0.80%). Financials edged up 0.20%. Major U.S. banks kicked off the quarterly earnings season with results above expectations. JPMorgan Chase & Co (“JPM”), Wells Fargo (“WFC”) and Citigroup (“C”) were up 4.92%, 3.30% and 2.47% respectively, as rising yields boosted net interest income.

On the flip side, consumer discretionary took a nosedive (-4.09%) with the freefall of Amazon (“AMZN”, down 6.69%) and Tesla (“TSLA”, down 8.11%).  Information Technology weighed on the broader market too (-3.23%). Sentiment on tech remains under pressure amid fears of more hawkish measures from the Fed. Defensive corners of the market such as the utilities sector also suffer from rising yields. The latter fell again (-2.56%) for the fifth week in a row. Ditto for real estate (-2.36%), the worst performer since mid-September with a cumulative loss of 21.34% over the last five weeks. Communication Services were pushed lower (-1.86%) by Meta platforms (“META”, down 5.01%) and Alphabet (“GOOG”, down 2.40%).