Summary
- FedEx profit warning affects peers
- All three main U.S. indexes record sharp weekly drops
- Investors eye next week’s Fed meeting
- Indexes down: S&P 0.72%, Dow 0.45%, Nasdaq 0.90%
U.S. stocks closed in the red on Friday, tumbling to two-month lows as a warning of a looming global downturn from FedEx quickened investors’ flight to safety at the end of a tough week. All three main U.S. stock indexes fell to levels not reached since mid-July, with the S&P 500 closing under 3,900, a keenly watched support level.
Stumbling past the finish line of a week fazed by inflation fears, impending interest rate increases, and gloomy economic warning signs, the NASDAQ and the S&P 500 experienced their worst weekly percentage drops since June.
David Carter, managing director at JPMorgan in New York, said:
“It’s been a tough week. It feels like Halloween came early. We are facing in this toxic brew of high inflation, high interest rates and low growth, which isn’t good for stock or bond markets.”
Risk-off sentiment moved from simmer to boil because of FedEx Corp pulling its earnings forecast late Thursday, citing signs of weakening global demand.
FedEx’s move came after remarks from the IMF and the World Bank, both of which warned of a looming global economic slowdown.
A stream of mixed economic data, influenced by a hotter-than-anticipated inflation report (CPI), secured an interest rate rise of at least 75 basis points at the end of the Fed’s monetary policy meeting coming week.
Carter added:
“While the market is expecting a big bump in the Fed’s rates next week, there is tremendous uncertainty and concern about future rate increases. The Fed is doing what it needs to do. And after some pain, markets and the economy will heal themselves.”
Financial markets have priced in an 18% possibility of an enormous, 100 basis point hike to the Fed funds target rate on Wednesday, based on CME’s FedWatch tool.
The S&P 500 (.SPX) fell 28.02 points, or 0.72%, to 3,873.33, the Nasdaq Composite (.IXIC) lost 103.95 points, or 0.9%, to 11,448.40, and the Dow Jones Industrial Average (.DJI) dropped 139.4 points, or 0.45%, to 30,822.42.
Nine of the eleven major sectors of the S&P 500 finished in negative territory, with industrials (.SPLRCI) and energy (.SPNY) sustaining the steepest percentage declines.
Dow Transports (.DJT), regarded as a gauge of economic health, plunged 5.1%. That fall was caused by FedEx shares sliding by 21.4%, the largest fall in the S&P 500.
Peers XPO Logistics (XPO.N) and United Parcel Service (UPS.N) shed 4.7% and 4.5%, respectively, while Amazon.com Inc (AMZN.O) tumbled 2.1%.
This session also marked the monthly options expiry, which takes place on the third Friday of every month. Options-hedging activity has increased market moves this year, leading to deepened volatility. The CBOE Market Volatility Index (.VIX), often called “the fear index,” hit a two-month high, moving past a level associated with deepened investor concern.
Declining issues exceeded advancing ones on the NYSE by a 3.04-to-1 ratio; on NASDAQ, a 2.24-to-1 ratio benefitted decliners. The S&P 500 recorded no new 52-week highs and 56 new lows; the NASDAQ Composite posted 21 new highs and 387 new lows.
Volume on U.S. exchanges was 16.92 billion shares, in comparison to the 10.72 billion average for the full session over the past 20 trading days.
