The major stock indexes continue to take a beating, with Monday’s session sending stocks to new lows for the year. Market sentiment remains negative in the face of rising interest rates, slowing global economic growth, and a strengthening dollar. The Dow Jones Industrial Average fell 329 points (1.1%), marking a 20.8% decline from its 52-week high in early January. Meanwhile, the S&P 500 was down 38 points, or 1.03%, to 3655.04. This marked a new closing low for the year, and a drop of 24% from its January 4th peak. The tech-focused NASDAQ fared the best of the three this time around, shedding 65 points or 0.8%. However, it too is in bear market territory, having lost one-third of its value since peaking in November 2021. Nearly all of the major market sectors ended the day deep in the red, with the biggest losses sustained by energy (-2.6%), utilities (-2.4%), and financials (-1.7%). Consumer staples were the only group that emerged unscathed, ending just above the breakeven mark.
Elsewhere, West Texas Intermediate prices fell 2.6%, to about $76.70 a barrel, the lowest level since early January. Meanwhile, 10-year Treasury yields continued to rise, reaching 3.9% for the first time in over a decade, while the two-year note topped 4.3%, its highest since 2007.
With borrowing costs ramping up, the consumer cutting back, and profits from overseas being translated into fewer dollars, Corporate America faces a challenging road ahead. We expect this will continue to be reflected in weakening equity values, at least until inflation slows down enough to allow the Federal Reserve to ease back on its monetary tightening. Until then, market volatility is likely to remain higher than normal.
As we head toward today’s opening bell, U.S. stock futures are indicating a positive start. In overnight trading, Asian markets mostly closed up. Meanwhile, stocks in Europe are firmly in the green. Elsewhere, oil futures are up 1.7%, at about 78.00 a barrel.
Looking ahead to the rest of the week, the economic calendar includes reports on July home prices and new home sales for August due out today. Wednesday brings pending home sales for August, followed by the latest figures for initial and continuing jobless claims on Thursday.
While those reports will help fill in the overall picture, market participants will be focused on Friday morning’s release of the PCE (personal consumption expenditures) Index for August, hoping for more evidence that inflation may be easing. Traders will also be keen to hear what several Fed Presidents have to say in their various talks scheduled throughout the week.
Given the high level of volatility in the market, investors will want to consider including companies with strong balance sheets, and cash flows ample to provide for their dividends. Subscribers to The Value Line Investment Survey will find a sample list of such companies on page 1630 of the current Selection & Opinion section of the Survey.
– Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
