“At this point, it’s not a matter of if we’ll have a recession, but what type of recession it will be,” said Sean Sun, portfolio manager at Thornburg Investment Management.
Smaller company stocks also had a rough September. The Russell 2000 ended the month down 9.7 per cent. On Friday, it lost 10.21 points, or 0.6 per cent, to 1,664.72.
Higher interest rates knock down one of the main levers that set prices for stocks. The other lever also looks to be under threat as the slowing economy, high interest rates and other factors weigh on corporate profits.
Cruise ship operator Carnival dropped 23.3 per cent for the biggest decline among S&P 500 stocks after it reported a bigger loss for its latest quarter than analysts expected and revenue that fell short of expectations. Rivals Norwegian Cruise Line and Royal Caribbean Group slid 18 per cent and 13.2 per cent, respectively.
Nike slumped 12.8 per cent, its worst day in more than 20 years, after it said its profitability weakened during the summer because of discounts needed to clear suddenly overstuffed warehouses. The amount of shoes and gear in Nike’s inventories swelled by 44 per cent from a year earlier.
This year’s powerful surge for the US dollar against other currencies also hurt Nike. Its worldwide revenue rose only 4 per cent, instead of the 10 per cent it would have if currency values had remained the same.
Nike isn’t the only company to see its inventories balloon. So have several big-name retailers, and such bad news for businesses could actually mean some relief for shoppers if it leads to more discounts. It echoed some glimmers of encouragement buried within Friday’s report on the Fed’s preferred gauge of inflation. That showed some slowing of inflation for goods, even as price gains kept accelerating for services.
Another report on Friday also offered a glimmer of hope. A measure of consumer sentiment showed US expectations for future inflation came down in September. That’s crucial for the Fed because tightly held expectations for higher inflation can create a debilitating, self-reinforcing cycle that worsens it.
Treasury yields initially eased a bit on Friday, letting off some of the pressure that’s built on markets, but then turned higher by late afternoon.
The yield on the 10-year Treasury rose to 3.81 per cent from 3.79 per cent late on Thursday. The two-year yield, which more closely tracks expectations for Fed action, rose to 4.23 per cent from 4.19 per cent.
Not all stocks took a beating in September. Biogen soared 35 per cent, but it was an outlier. FedEx was among the market’s biggest losers, ending the month 29.6 per cent lower.
Looking at the third quarter, which included a market rally in July, Netflix was among the best performers, climbing 34.6 per cent. It’s still down 60.9 per cent for the year.
A long list of other worries continues to hang over global markets, including increasing tensions between much of Europe and Russia following the invasion of Ukraine. A controversial plan to cut taxes by the U.K. government also sent bond markets spinning recently on fears it could make inflation even worse. Bond markets calmed a bit only after the Bank of England pledged mid-week to buy however many U.K. government bonds are needed to bring yields back down.
The stunning and swift rise of the US dollar against other currencies, meanwhile, raises the risk of creating so much stress that something cracks somewhere in global markets.
Stocks around the world were mixed after a report showed that inflation in the 19 countries that use Europe’s euro currency spiked to a record and data from China said that factory activity weakened there.
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
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