Wall Street ended the week broadly lower with the bulls corralled by persistently hawkish comments from Federal Reserve bankers.
Hopes that the Fed might pause its tightening of monetary policy started the week on life support and ended it dead and buried after several Fed officials reaffirmed the US central bank’s determination to keep price pressures in check.
Economic data either reflected outright price pressures or showed that the economy was growing fast enough to encourage the Fed to raise rates further.
“We have had a frontal attack from three Federal Reserve governors warning that inflation is a problem and they have not finished raising rates yet, and most investors are nervous,” said Al Goldman, chief market strategist at AG Edwards.
The prospect of higher borrowing costs weighing on Corporate America sent the Dow Jones Industrial Average down 2.6 per cent for the week by Friday’s close, while the broader S&P 500 index retreated 2.7 per cent for its worst weekly showing in five months and the tech-laced Nasdaq Composite 2.9 per cent.
“This has been a nasty week for stocks, particularly because of the breadth of the selling,” Mr Goldman said. “We have seen bloodletting in the energy group that has been the lead sled-dog for three years, and the money that has come out of the market has not gone into other sectors.”
The indices were finished the week lower in spite of modest gain on Friday. Proving yet again that optimism is its core competency, Wall Street opted to see the jobs report as a bullish sign of economic strength.
Peter Cardillo, chief strategist at SW Bach and Co, argued that the threat of higher rates was now fully discounted by the equity market, assuming Fed talk did not become yet more hawkish. “Stagflation fears should begin to dissipate,” he said, pointing to Friday’s data.
Energy-related stocks led the way down this week, with oil and gas explorers in the S&P 500 down 8.8 per cent and oil & gas drillers down 8.4 per cent. Also affected were homebuilders, down 7.9 per cent, and steel stocks, down 7.6 per cent.
Meanwhile, airlines had a lift-off and were up 2.1 per cent as defined by their S&P 500 sub-index and up 6.4 per cent as reflected by the Amex airline index. An index of banking shares, which tend to benefit from higher interest rates, had lost 0.9 per cent for the week by Friday’s close.
Delphi seemed to go from bad to worse as the troubled car parts maker struggled to stave off a bankruptcy filing by negotiating concessions with unions. The shares fell 49.1 per cent on Friday morning and were 59.4 per cent down on the week.
With the third-quarter earnings season fast approaching, companies have been giving the Street estimates on what to expect. ADC Telecommunications was among bearers of disappointing news and saw its shares lose 13.5 per cent on Wednesday, when it lowered its earnings forecast range. It lost 15 per cent on the week.
Lexmark International, the printer maker, warned of lower profits and its shares slumped 26.2 per cent on Tuesday, for a weekly loss of 29.9 per cent.
Among software companies, Mercury Interactive fell 14.5 per cent on Wednesday after it cut its earnings estimate. It was down 16.5 per cent on the week.
Analyst comments moved the market. Eastman Kodak fell 4.6 per cent to a new 22-month low on Tuesday after JPMorgan downgraded the stock on worries about the deteriorating profitability of the company’s photo business. The shares lost 3.1 per cent on the week.
Texas Instruments, meanwhile, was down 3.3 per cent in the same session and off 9.2 per cent on the week as Goldman Sachs analysts downgraded the stock. Positive analyst comments also affected trade, with Lexar Media’s stock advancing 18.3 per cent on Wednesday after a JPMorgan upgrade. It added 20.5 per cent for the week.
A host of retailers reported September sales at their stores open at least one year, and shares responded accordingly on Thursday.
Guess, the clothing shop operator, gained 16.4 per cent after it reported a 14.2 per cent growth in sales, and was up 20.2 per cent on the week. However, Talbots lost 7.8 per cent after it said like-for-like sales declined 5.1 per cent last month. Its stock lost 10 per cent for the week.