Market Update 18/9: Market Fidgety Over This Week's Main Course

On Friday, three major stock market indices in the US saw a decline ahead of this week’s interest rate decision by the Federal Open Market Committee (FOMC) set on Wednesday. The Nasdaq-100 index saw the biggest decline, being 1.18% down in just one day. This is followed by the S&P 500 index which saw a 0.63% decline, and the Dow Jones Industrial Average (DJIA) which saw a 0.03% decline over the same period.

Over the course of the previous week, these indices have shown declines in most parts, except for the DJIA which saw itself inching up by 0.12%. The S&P 500 trailed in the opposing direction, having seen itself moving down by 0.16%. The week’s top loser seems to be the Nasdaq-100 which saw itself moving down by 0.51%.



A cause for concern

The move on Friday can most probably indicate the sentiment looming within the market ahead of the interest rate decision. Market players are trying their best to optimize their portfolios ahead of the announcement by the US Federal Reserve (the Fed).

The reason why such preparation results in gloomy market sentiment rests in the data released over the past few weeks. As a start, the US Consumer Price Index (CPI) YoY saw an increase of 3.7% in the September announcement, 0.5% higher than August’s 3.2%. This is also 0.1% higher than the forecast of 3.6%.

High inflation would most likely point to another rate hike by the Fed, given how careful Jerome Powell is when it comes to trying to get inflation down to 2%, as he (again) reiterated during his speech in Jackson Hole last month. Core inflation, however, took a better turn whereby it decelerated from 4.65% to 4.35% for August.

Apart from that, US Retail Sales are also going up to $606.7 billion from $603.14 billion, which is a 0.61% increase MoM and a 1.63% increase YoY. To many, this is a good sign of a strengthening market. However, this could also lead to a different path, whereby the Fed can interpret a strong market as one that could cause an ‘overheat’ in demand, thus leading inflation back up.

In August, nonfarm payroll employment went up by 187,000. This is another call for concern as a tightening labor market could mean that inflation might stay high for a while, or at least that is what the Fed goes by up until now.

If there’s any consolation, the unemployment rate also increased by 0.3% to 3.8%, according to the U.S. Bureau of Labor Statistics. More people got jobs in healthcare, leisure, helping professions, and construction. However, there were fewer jobs in transportation and warehousing. However, the number of people without jobs increased by 514,000, totaling 6.4 million.

If one is to take a guess, the writer personally is of the opinion that the Fed is not yet done with rate hikes. Instead, the recent data are a cause for concern and will most likely lead to another hike — that is if the Fed thinks the current rate is not yet too high.

High activities in tech

The past week saw high activities in the tech sector. On Friday, U.S. stocks had a significant drop due to concerns about weak consumer demand affecting chipmakers and rising Treasury yields impacting large growth companies like Amazon. Chip equipment manufacturers like Applied Materials, Lam Research, and KLA Corp saw declines after news that TSMC asked its key suppliers to delay deliveries. This news also led to drops in companies like Nvidia, Advanced Micro Devices, Broadcom, and Micron Technology.

Over the past week, Apple saw a decline of around 2.86% in its share price after its recent product release saw Wall Street not buying much on what they have to offer. This follows their (yet another) reported decline in revenue over the past three quarters straight.

If that is not enough to bring them down, Apple’s decline was also exacerbated by reports that the Chinese government banned their officials from using iPhones at work, a statement which was later refuted by China’s Ministry of Foreign Affairs.

On a less gloomy note, the newly launched Arms IPO beat the IPO-slump odds when it soared up to $69.47, which is 25.9% higher than its launching price. This, paired with millions in volume over the stock’s trading days points to the recovering enthusiasm the market has over IPOs after a while.

What to watch for this week?

Here are the key market factors to watch this week:

Housing Trends: The housing market’s response to demand and building permits may impact future housing prices. This would include this week’s data releases such as the Building Permits data and Existing Home Sales data.

Fed’s Decision: The Federal Reserve’s stance on interest rates in the face of inflation and energy concerns will influence market sentiment.

Economic Indicators: Flash PMI reports and their market reactions may reflect the broader economic landscape and potential shifts in interest rates. Rising fuel prices could impact transportation costs and consumer behavior, affecting both interest rates and market dynamics.

Bottom line

This week’s main focus will be on the rate decision that is coming this Wednesday. Market players should take a closer look at the overall market trends prior to the announcement and following it. These movements would usually discount the information that is available to the market, even when it’s not conclusive. Apart from the rate hike, the market is also eyeing how the tech sector will fare in the coming days.

The key takeaways/market update is a series by AxeHedge, which serves as an initiative to bring compact and informative In/Visible Talks recaps/takeaways on leading brands and investment events happening around the globe.

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