The stock market closed out an important week in negative territory Friday after an influx of economic data pointed to the possibility of the Federal Reserve raising interest rates at its next policy meeting next week.
In its ongoing quests to curb inflation back down to its 2% target, the Fed has been aggressive in its rate hikes since the early stages of 2022. While there’s now broad speculation that the Fed might halt this rate-hiking spree at the upcoming meeting, it’s also a realistic possibility that, given we are in a mostly healthy economy with a stable the labor market, that the Fed could hike one more time before the end 2023. Needless to say, all eyes will be on what the Fed’s policy meeting reveals on Wednesday.
However, the Fed’s decision won’t be the only catalyst driving Wall Street this week. Speaking of driving, the estimated 13,000 U.S. auto workers who halted their vehicle production lines made a bold statement to the Big Three automakers, Ford (F), General Motors (GM) and Stellantis (STLA). Negotiations between the United Auto Workers labor union leaders and representatives of the automakers failed to reach a consensus before the clock struck midnight Thursday, signaling the expiration of the four-year labor contracts.
The ultimate outcome of the strike can send ripples throughout the stock market, particularly in the EV battle where the likes of Tesla (TSLA) is certainly paying close attention. But investors aren't taking chances. On the heels of of its 332-point rally Thursday, 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. Among the Dow’s notable decliners were Apple (AAPL), Salesforce (CRM) and Microsoft (MSFT). The S&P 500 gave up 54.78 points, or 1.22%, finishing at 4,450.32.
Of the eleven S&P 500 sectors, technology was the worst-performing group, losing nearly 2%. Despite delivering better-than-expected quarterly results, Adobe (ADBE) stock fell more than 4%. The decline in Adobe pressured tech-heavy Nasdaq Composite which gave up 217.72 points, or 1.56%, to close at 13,708.33. Adobe’s punishment offset the strong showing of Arm Holdings (ARM) which made a dazzling debut on the Nasdaq, soaring an impressive 24.7%.
The AI chip designer specialist sold 95.5 million shares at $51.00 per share, raising over $4.9 billion for selling shareholder SoftBank Group. Arm had priced at the top end of a suggested range between $47 to $51, but the stock quickly jumped to $60 in initial trading, pushing its valuation to $60 billion. Arm’s resounding success sent positive ripples through the IPO market, which had experienced a slowdown in the wake of concerns about escalating interest rates. But this now has the potential to revive investor's appetite for IPOs in the coming months.
In the near term, however, the Fed's decision regarding interest rates which set to be announced Sept. 20, will be what investors focus on. A recent consumer sentiment survey from the University of Michigan showed one-year inflation expectations dropped to 3.1% in September. That measure is tied for the lowest since January 2021. Meanwhile, the five-year outlook fell to 2.7% to match the lowest metric in almost three years. Will this be enough to cause the Fed to pause its rate hike?
While earnings season has slowed down considerably, it's not quite over yet. FedEx, reporting this week, will be a key stock to watch.
FedEx (FDX) - Reports after the close, Wednesday, Sep. 20
Wall Street expects FedEx to earn $3.73 per share on revenue of $21.8 billion. This compares to the year-ago quarter when earnings came to $3.44 per share on revenue of $23.58 billion.
What to watch: Shares of the transportation giant FedEx have risen 46% year to date, besting the 16% rise in the S&P 500 index. Despite having fallen some 5% over the thirty days, the stock has been one of the better performers in the Dow Jones transportation Average. Currently trading at $254, the stock has added more than $20 since its last earnings results. Even more impressive, its shares have gained 24% over the past year, more than doubling the S&P 500 index. But with some vulnerabilities showing in its core operations, particularly in package volume, the company still has a lot to prove in terms of execution. In its last quarterly results, FedEx's Express segment, which accounts for roughly half of the company's revenue, missed analysts's quarterly revenue estimates by approximately $350 million. Reduced shipment volumes was largely blamed for the shortfall. This was offset by the Ground segment which saw an uptick in revenue per package, though it too suffered weak volumes. Amid macroeconomic weakness in the U.S. and Asia as well as service challenges in Europe, the company's three business segments had suffered due to lower shipping volumes. Its management has figured ways to offset the volume weakness by improved yields and reduced expenses, but investors would much rather have volumes trend upward. On Wednesday the company will look to preserve investor confidence as it relates to profitability and volume improvements among the company’s various business segments.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.