TThe stock market ended a key week on a negative note Friday after an influx of economic data pointed to the possibility that the Federal Reserve could raise rates at its next policy meeting next week.
In its continued efforts to reduce inflation to its 2% target, the Fed has been aggressive in its rate hikes since the start of 2022. While there is now widespread speculation that the Fed could halt these rate hikes at its upcoming meeting, it is also a realistic possibility that, given that we are in a largely healthy economy with a stable labor market, the Fed may do so again before the end of 2023. can implement the interest rate increase. Needless to say, all eyes will be on what the Fed’s policy meeting will be. turns out Wednesday.
However, the Fed’s decision won’t be the only catalyst driving Wall Street this week. Speaking of driving, the estimated 13,000 American auto workers shutting down their auto production lines have made a bold statement to the Big Three automakers, Ford (F), General Motors (GM) and Stellantis (STLA). Negotiations between United Auto Workers union leaders and representatives of the automakers failed to reach a consensus before the clock struck midnight Thursday, signaling the expiration of four-year labor contracts.
The eventual outcome of the strike could send ripples through the stock market, especially in the EV battle where Tesla (TSLA) is certainly paying close attention. But investors don’t take risks. After Thursday’s 332-point rally, the Dow Jones Industrial Average took a step back on Friday, giving up 288 points (or 0.83%) to end Friday’s session at 34,618.24. Notable Dow Jones decliners included Apple (AAPL), Salesforce (CRM) and Microsoft (MSFT). The S&P 500 lost 54.78 points, or 1.22%, to end at 4,450.32.
Of the eleven S&P 500 sectors, technology was the worst performing group, down nearly 2%. Despite better-than-expected quarterly results, shares of Adobe (ADBE) fell more than 4%. Adobe’s decline put pressure on the tech-heavy Nasdaq Composite, which lost 217.72 points, or 1.56%, to close at 13,708.33. Adobe’s punishment offset the strong performance of Arm Holdings (ARM), which made a dazzling debut on the Nasdaq, rising an impressive 24.7%.
The AI chip designer specialist sold 95.5 million shares at $51.00 per share, raising more than $4.9 billion for selling shareholder SoftBank Group. Arm had priced at the high end of a suggested range between $47 and $51, but the stock quickly jumped to $60 in initial trading, bringing its valuation to $60 billion. Arm’s roaring success created a positive wave in the IPO market, which had been experiencing a slowdown due to concerns over escalating interest rates. But this now has the potential to revive investor interest in IPOs in the coming months.
In the short term, however, investors will focus on the Fed’s interest rate decision, which will be announced on September 20. A recent consumer confidence survey from the University of Michigan shows that one-year inflation expectations fell to 3.1% in September. That measure is at its lowest level since January 2021. Meanwhile, five-year expectations have fallen to 2.7%, matching the lowest measure in almost three years. Will this be enough to prompt the Fed to pause its rate hike?
Although earnings season has slowed down significantly, it’s not quite over yet. FedEx, which reports this week, will be a key stock to watch.
FedEx (FDX) – Post-closing reports, Wednesday, September 20
Wall Street expects FedEx to earn $3.73 per share on revenue of $21.8 billion. This compares to last year’s quarter, when earnings were $3.44 per share on revenue of $23.58 billion.
What to watch: Shares of transportation giant FedEx are up 46% year to date, outpacing the 16% gain in the S&P 500 index. Although the stock is down about 5% in the past thirty days, the stock is one of the better performers in the Dow Jones Transportation Average. Currently the stock is trading at $254, but since the last earnings results the stock has added more than $20. Even more impressive, shares are up 24% over the past year, more than doubling the S&P 500 index. But with some vulnerabilities emerging in its core business, especially in package volume, the company still has a lot to prove in terms of execution. In its latest quarterly results, FedEx’s Express segment, which accounts for about half of the company’s revenue, missed analysts’ quarterly revenue estimates by about $350 million. Reduced shipping volumes were largely responsible for the shortage. This was offset by the Ground segment, where revenue per package increased, although this segment also suffered from weak volumes. Amid macroeconomic weakness in the US and Asia and service delivery challenges in Europe, the company’s three business segments suffered from lower shipping volumes. Management has figured out ways to offset the volume weakness through higher returns and lower costs, but investors would much rather see volumes increase. On Wednesday, the company will look to maintain investor confidence when it comes to profitability and volume improvements across the company’s various business segments.
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