U.S. stocks pulled back on Thursday as Wall Street wrapped up its worst month of the year on a sour note.
The Dow Jones Industrial Average dropped 547 points, 1.6%, after rising at the opening bell. The broader S&P 500 was down more than 1%, while the tech-heavy Nasdaq Composite fell 0.4%.
The weakness for the market came on the final day of what has been a rough month for equities, as rising rates, inflation fears and concerns about the Chinese property market have roiled stocks. The S&P 500 finished September down more than 4% for its worst month since March 2020, when the pandemic caused a major market sell-off. The Dow and the Nasdaq suffered their worst months in 2021.
“September lived up to its reputation and dented stock portfolio returns, but not too badly,” wrote Ed Yardeni of Yardeni Research. “There has been a lot of concern that higher wages, higher energy prices, and higher transportation costs will weigh on earnings for the remainder of this year and into 2022. It’s certainly something we’ll be tracking. But so far, analysts remain relatively sanguine.”
Concerns about inflation and supply chain issues continued to hamper the markets on Thursday. Shares of Bed Bath & Beyond fell more than 20% in early trading after the company said those issues hurt the company’s second quarter results, and the news also weighed on fellow retail stocks. Walgreens Boots Alliance and Home Depot fell more than 2%, making them two of the worst performers in the Dow.
Energy and financial stocks, which have been some of the best performers in recent weeks, took a step back on Thursday. Shares of Goldman Sachs and JPMorgan were down by more than 1%.
Tech stocks outperformed on Thursday but the Nasdaq still suffered its fifth-straight losing session. Tech names have been hit by the recent jump for 10-year Treasury yield, which broke above 1.567% earlier in the week. The measure retreated slightly on Thursday.
Rising yields, fueled by concerns over inflation and the Federal Reserve’s signals that it will soon begin winding down its pandemic-era asset purchases, are seen as a negative for tech stocks because they make far-off future profits look less attractive to investors.
“We’ve been talking about spooky season — September and October — and the expectation of about a 5% dip from the high, which we’ve had on an intraday basis. But we’ve said we don’t expect a correction,” said David Bianco, chief investment officer at DWS Group.
“We expect yields to climb, and that’s why we’re overweight banks, but we don’t expect yields to surge. And without a surge in yields, we can live with these [valuations],” Bianco added.
Shares of Apple and Amazon finished the day in negative territory after moving higher in morning trading. Chip giant Nvidia and Netflix managed to hold on to their gains but closed well off session highs.
“We wouldn’t get caught up in any end-of-quarter machinations today and continue to advise fading rallies (especially in tech) as the coming weeks will stay rocky,” wrote Adam Crisafulli of Vital Knowledge.
September’s losses led to a weak third quarter for the market. For the 3-month period, the Dow dropped 1.9%, while the Nasdaq Composite shed 0.3%. The S&P 500 held on to a modest gain and is still up 15% on the year.
October has a reputation for some violent sell-offs but overall is typically the start of a better seasonal performance for stocks. The S&P 500 averages a 0.8% gain for the month, according to the Stock Trader’s Almanac.
Investors were also keeping an eye on Washington as Congress passed a bill that would fund the government through early December.
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen testified before the House Financial Services Committee on Thursday morning. Yellen reiterated her call for Congress to raise the debt ceiling, saying that failure to do so would be “catastrophic.”
On the data front, initial jobless claims for the prior week came in at 362,000. Economists were expecting a print of 335,000, according to Dow Jones.
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