Wall Street slams door on September

Wall Street closed out a miserable September on Friday with the benchmark S&P 500’s worst monthly skid since March 2020, when the coronavirus pandemic crashed global markets.

The benchmark index ended the month with a 9.3% loss and posted its third-straight losing quarter. It’s now at its lowest level since November 2020 and is down by nearly a quarter since the start of the year.

The main reason financial markets continue to struggle is fear about a possible recession, as interest rates soar in hopes of taming the high inflation that’s swept the world.

“Quite frankly, if it’s a deep recession, you’re going to have to see more of a sell-off,” said Quincy Krosby, chief equity strategist for LPL Financial Holdings Inc. “This is what the market is trying to navigate now.”

The Federal Reserve has been at the forefront of the global campaign to slow economic growth and hurt job markets just enough to undercut inflation but not so much that it causes a recession. More data arrived Friday to suggest the Fed will keep its foot firmly on the brakes on the economy, raising the risk of its going too far and causing a downturn.

The Fed’s preferred measure of inflation showed it was worse last month than economists expected. That should keep the Fed on track to keep raising rates and hold them at high levels a while, as it has loudly and repeatedly promised to do.

Fed Vice Chair Lael Brainard was the latest central bank official Friday to insist the Fed won’t pull back on rates prematurely. That helped to keep snuffed out hopes on Wall Street for a “pivot” toward easier rates as the economy slows.

“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.

All told, the S&P 500 fell 54.85 points, or 1.5%, to close at 3,585.62 Friday, after flipping between small losses and gains in the early going. It has now posted a weekly loss in six out of the last seven weeks.

The Dow Jones Industrial Average dropped 500.10 points, or 1.7%, to 28,725.51. The Nasdaq composite slid 161.89 points, or 1.5%, to 10,575.62. The tech-heavy index sank 10.5% in September and is down 32.4% so far this year.

Smaller company stocks also had a rough September. The Russell 2000 ended the month down 9.7%. On Friday, it lost 10.21 points, or 0.6%, to 1,664.72.

Cruise ship operator Carnival Corp. dropped 23.3% 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 Holdings Ltd. and Royal Caribbean Group slid 18% and 13.2%, respectively.

Nike Inc. slumped 12.8%, its worst day in more than 20 years, after it said profitability weakened during the summer because of discounts needed to clear overstuffed warehouses. The amount of shoes and gear in Nike’s inventories swelled by 44% from a year earlier.

This year’s powerful surge for the U.S. dollar against other currencies also hurt Nike. Its worldwide revenue rose only 4%, instead of the 10% 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. Some glimmers of encouragement were buried in a Friday 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 Friday also offered a glimmer of hope. A measure of consumer sentiment showed U.S. 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 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% from 3.79% late Thursday. The two-year yield, which more closely tracks expectations for Fed action, rose to 4.23% from 4.19%.

Not all stocks took a beating in September. Biogen Inc. soared 35%, but it was an outlier. FedEx Corp. was among the market’s biggest losers, ending the month 29.6% lower.

Looking at the third quarter, which included a market rally in July, Netflix Inc. was among the best performers, climbing 34.6%. It’s still down 60.9% for the year, however.

A long list of other worries continues to hang over global markets, including increasing tensions between much of Europe and Russia after 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 midweek to buy however many U.K. government bonds are needed to bring yields back down.

The stunning and swift rise of the U.S. 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.

Information for this article was contributed by Joe McDonald and Matt Ott of The Associated Press.

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