Chinese manufacturing in September has been damped by an energy crunch.
AFP via Getty Images
The stock market had the ugly September that many feared. There’s no one thing to blame.
On Thursday, the Dow Jones Industrial Average
dropped 546.80 points, or 1.6%, while the S&P 500 fell 1.2%. The Nasdaq Composite declined 0.4% after being in the green earlier in the session.
This month marked the worst September for both the S&P 500 and the Dow since 2011, according to Dow Jones Market Data.
The dismal end to the month for stocks, however, was accompanied by some progress in Washington. On Thursday, Congress passed a stopgap funding bill that will maintain government spending at current levels through December 3. The bill, which averts a government shutdown, will be sent to President Joe Biden to be signed hours before funding expires.
The S&P 500 fell 4.8% for the month, but still managed to eke out a gain for the third quarter, which ended at Thursday’s close. Historically, when the index declines more than 2% in September, it sees a 0.4% decline in October, on average.
The Dow suffered a 4.3% decline for the month, and was the worst performer of the three major U.S. indexes for the third quarter overall. The index ended the quarter down almost 2%—which marks its largest quarterly point and percentage decline since the first quarter of 2020.
Several factors have put a dent into the stock market this month, including worries about the outlook for corporate earnings for the next few quarters if supply constraints persist and rising bond yields as the Federal Reserve has signaled an eventual increase in interest rates.
One major potential contributor to Thursday’s declines: so-called portfolio window dressing. That’s when portfolio managers sell out of the worst-performing stocks for the quarter to paint a brighter picture of what clients are invested in.
“It’s the last day of the quarter,” said Peter Boockvar, chief investment officer of Bleakley Advisory Group. “Sometimes, as a portfolio manager, you may want to sell stocks that didn’t work that quarter.”
Overall this month, economically-sensitive, or “cyclical,” stocks on the S&P 500 have seen earnings estimates fall more often than rise in recent weeks, according to RBC Capital Markets. The group has seen a much higher rate of downward earnings estimate revisions than other groups within the index.
Supply chain constraints are hampering companies’ ability to meet demand and creating higher costs, which could mean narrowing profit margins.
With many companies still yet to report third-quarter earnings, “it’s clear that company profit margins are going to be under pressure,” Boockvar said.
The technology-heavy Nasdaq outperformed the other two major U.S. indexes on Thursday, in part because bond yields puased their recent surge for a second straight day. Higher bond yields make future profits less valuable—and many fast-growing tech companies expect big profits years down the line.
The 10-year Treasury ended Thursday yielding 1.52%, receding from 1.54% earlier in the session—even after weekly jobless claims rose more than expected to 362,000. The yield is still notably elevated, however, from last week’s low of 1.31%.
Now, investors are trying to discern when to buy the dip. Importantly, the last time the S&P 500 touched 4,310—the index is now a hair below that level—it promptly rose. But if the index falls below that level, the next stop could be the index’s 200-day moving average of 4,134, says John Kolovos, chief technical strategist at Macro Risk Advisors.
That isn’t a huge surprise, as bond yields could easily be headed higher from here. The 10-year yield is still below the long-term expected rate of inflation, which indicates it can rise from here. Some on Wall Street see the yield going to 1.7% fairly soon. That could dent tech valuations even further.
Here are 6 stocks on the move Thursday:
CarMax (ticker: KMX) stock fell 12% after the company reported a profit of $1.72 a share, missing estimates of $1.88 a share, on sales of $7.99 billion, above expectations for $6.91 billion.
McCormick & Company (MKC) stock fell 3.1% after the company reported earnings of 80 cents a share, beating estimates of 72 cents a share, on sales of $1.55 billion, above expectations for $1.54 billion.
Snowflake (SNOW) stock rose 2.9% after getting upgraded to Buy from Neutral at BTIG Research.
Kohl’s (KSS) stock dropped 12% after getting downgraded to Underperform from Buy at Bank of America.
Perrigo (PRGO) was up 9% after the pharma group settled an Irish tax dispute Wednesday.
Virgin Galactic (SPCE) rocketed up 12%. The Federal Aviation Administration cleared the company after an investigation into a flight deviation during the trip that carried founder Richard Branson into space this summer.
Write to Jacob Sonenshine at [email protected]
