Dow, S&P 500, Nasdaq slump as U.S. stocks erase week-to-date gains amid 'quad witching' and weak consumer-sentiment reading

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By Christine Idzelis and Mark DeCambre

U.S. stock benchmarks are under selling pressure Friday, with bearish momentum gathering steam into the afternoon, as a reading on consumer sentiment held close to a roughly 10-year low last seen in August.

Investors also were dealing with volatility from the simultaneous options expiries this session, known colloquially on Wall Street as quadruple witching.

How are stocks trading?

On Thursday, the Dow industrials closed down 63.07 points, or 0.2%, to 34,751.32, the S&P 500 ended down 6.95 points, or 0.2%, to 4,473.75, while the Nasdaq Composite rose 20.39 points, or 0.1%, to finish at 15,181.92.

For the week, the Dow is on track for a 0.1% decline, erasing an earlier 0.4% gain, while the S&P 500 is off 0.6% and Nasdaq Composite is heading for 0.7% decline, according to FactSet data, at last check.

What’s driving the market?

The bears were out in numbers on Friday, with downside momentum, wiping out weekly gains for the three main indexes, amid whipsawing action throughout the five-session trading stretch.

The market’s “consternation” is linked to concerns over the delta variant of the coronavirus and the toll it may be taking on growth, said Dave Grecsek, managing director of investment strategy and research at Aspiriant, in an interview Friday. “The market is really struggling to try and see through that.”

Declines on Wall Street accelerated somewhat following the University of Michigan’s gauge of consumer sentiment, which rebounded slightly to a preliminary September reading of 71 from a final August reading of 70.3, above consensus estimates for 72.

However, the reading remains close to the roughly 10-year low seen in August, with consumers feeling worse about the economy today than at any point during the COVID-19 pandemic.

Consumer sentiment is drawing more attention than it ordinarily would because of the significance of consumer behavior on the economic recovery from the pandemic.

“Consumer Sentiment is still in the gutter, but consumers’ anxiety isn’t reflected much in consumer spending,” wrote Robert Frick, corporate economist with Navy Federal Credit Union, in emailed comments.

“We had surprisingly strong retail sales numbers released yesterday, and while spending on certain services is being hurt by the delta wave, services spending is still healthy and remains above pre-pandemic levels,” he wrote, adopting an optimistic tone.

“Consumer confidence is bottoming out as we move past peak delta in the U.S.,” said Jeff Schulze, an investment strategist at ClearBridge Investments, in a phone interview Friday. Schulze said that he expects that growth, which hit a “soft patch” in the third quarter, will accelerate in the final three months of the year.

Indeed, data earlier this week showed stronger-than-expected U.S. August retail sales, but a jump in weekly jobless benefit claims, all ahead of next week’s two-day Federal Open Market Committee policy meeting.

Muddling the picture for some investors weighing the all-important gathering of the rate-setting FOMC is that data has otherwise been healthy enough to justify ending pandemic programs and monetary policies that have been market supportive.

“Stronger-than-expected data seemed to have fueled Fed tapering expectations rather than the bulls’ appetite,” said Ipek Ozkardeskaya, senior analyst at Swissquote, who notes that sentiment feels mixed.

The market is starting to price in the “new reality” of a Fed that may become less accommodative as soon as this year as the economy strengthens, said Schulze.

And:Fed interest rate increase outlook due next week carries risk of hawkish surprise

Read:When the Fed finally steps back, can the U.S. stock and bond markets stand on their own legs?

But while Wall Street firms have expressed nervousness as stocks ground higher in recent months, Ozkardeskaya said a correction is being prevented by “the fear of missing out on a further rally in equities, the so-called FOMO, and the fact that there is no alternative, the so-called TINA.”

With the U.S. 10-year Treasury yield now around 1.38%, an advance to 2% that many forecast earlier this year has yet to happen, the analyst said, adding that “the high inflationary pressures leave investors with no place to go but the equities. Therefore, the U.S. indexes will continue claiming new highs in the coming sessions.”

Read:Will high inflation kill the bull market in stocks? History says probably not

Schulze, meanwhile, said he expects interest rates will rise as the Fed moves toward tightening its policy, with higher Treasury yields leading to lower stock valuations as inputs to discounted cash flow formulas are readjusted. In that sort of rising interest rate environment, Schulze said he favors value stocks and expects small-cap equities to outperform large-cap.

On the COVID front, a group of independent advisers to the U.S. Food and Drug Administration will meet on Friday to review and vote on whether vaccinated Americans should get booster shots. While companies such as Pfizer Inc. (PFE) and Moderna Inc. (MRNA) say the boosters are needed, scientists have cited a lack of evidence to support that rollout

Adding to the market’s volatility may be Friday’s “quad witching,” the simultaneous expiration of individual stock options, stock-index options, stock-index futures and single-stock futures.

Which companies are in focus?

How are other assets trading?

–Barbara Kollmeyer contributed to this report

-Christine Idzelis


(END) Dow Jones Newswires

09-17-21 1443ET

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