The final week of the third quarter saw Wall Street closing lower, with the Dow, S&P 500, and Nasdaq experiencing sharp declines for both the month of September and the quarter. This marked a break in the streak of consecutive quarterly gains for the Dow and S&P 500, while the Nasdaq’s retreat followed two quarters of advances. Despite these declines, all three stock benchmarks have performed well year to date, and investors are optimistic about the fourth quarter, which traditionally has been the best-performing quarter. However, the Federal Reserve’s decisions regarding interest rates remain a significant uncertainty.
The Federal Reserve’s pause in rate hikes and its indication of only one more increase this year has been welcomed by those who believe the central bank has already done enough with the 11 rate hikes since March 2022. A positive development in this regard was the softer monthly reading of the core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge. While still above the Fed’s 2% inflation target, the smaller increase in core PCE marked a continuation of the downward trend since September 2022. This decrease in inflation may influence the Fed’s decision on further rate hikes.
As the fourth quarter begins, high interest rates and the sharp rebound in energy prices remain significant obstacles for equity prices. Investors are closely scrutinizing major economic reports, earnings from key companies, and the impact of the auto strike and a potential government shutdown. Key economic data to watch includes the nonfarm payroll report, which provides a detailed breakdown of the labor market, and reports on manufacturing activity. Additionally, the outcome of the UAW strike against the Big 3 Detroit automakers could have lasting consequences for wages, corporate margins, and automation efforts.
In summary, Wall Street closed the third quarter on a lower note, breaking the streak of consecutive quarterly gains for the Dow and S&P 500. However, the year-to-date performance of the stock benchmarks remains positive, and investors are hopeful for a strong fourth quarter. The Federal Reserve’s decision on interest rates and the state of inflation will play a crucial role in shaping market sentiment. Additionally, key economic data, earnings reports, and the impact of the auto strike and a government shutdown are factors to watch in the weeks ahead.