S&P 500 retreats ~3% for the week, as traders come to grips with higher for longer Fed

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The S&P 500 (SP500) on Friday retreated 2.93% for the week to close at 4,320.00 points, posting losses in four out of five sessions. Its accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) slipped 2.92% for the week.

The benchmark index notched its worst weekly performance since early March, while also slumping to a three-week losing streak. The main catalyst behind the decline was the Federal Reserve's indication that interest rates will be higher for longer.

The central bank was the main event of the week. The Fed's monetary policy committee on Wednesday chose to keep rates steady, as widely anticipated. However, the latest dot plot - a summary of economic and rate projections - signaled one more rate hike this year along with fewer rate cuts in 2024.

Moreover, Powell at the post-decision conference said that a soft landing was not a baseline expectation, which further shook investor confidence. The Fed chair also highlighted that economic activity had been stronger than all expectations.

In reaction to the Fed, markets slumped on Wednesday and extended that decline on Thursday. In the latter trading session, the S&P 500 (SP500) at one point hit its most oversold level of the year, according to Bespoke Investment Group.

Also weighing on equities was a surge in Treasury yields, as traders sold-off bonds on the Fed's higher for longer signal. This week, the shorter-end 2-year yield (US2Y) - which is more sensitive to interest rate decisions - scaled a level not seen since 2006, while the longer-end 10-year yield (US10Y) hit its highest since 2008.

See how Treasury yields have done across the curve at the Seeking Alpha bond page.

It was a big week for central banks in general. The Bank of England on Thursday joined the Fed in keeping interest rates steady, a day after UK consumer inflation came in cooler than expected in August. The Bank of Japan on Friday maintained its ultra-loose policy while giving a dovish guidance.

Aside from the Fed, the week also saw several other notable highlights: WTI crude oil futures (CL1:COM) snapped a three-week advance, helped in part due to the recent larger-than-anticipated OPEC+ production cuts. Rising energy prices have added to inflationary concerns.

Stocks of the so-called "Detroit Three" carmakers - General Motors (GM), Ford (F) and Stellantis (STLA) - garnered significant attention, amid the first full week of the United Auto Workers strike. There were some signs of headway on Friday, with the union saying they had made significant progress in their talks with Ford (F) while calling for strikes at 38 General Motor (GM) and Stellantis (STLA) locations.

The initial public offering (IPO) market grabbed some of the spotlight this week following British chip designer Arm Holdings' (ARM) strong market debut. Grocery deliver app Instacart (CART) launched on the Nasdaq on Tuesday to similar enthusiasm. However, in the past few days, both Arm (ARM) and Instacart (CART) saw declines, while also breaking below their IPO prices.

Merger and acquisitions activity saw a major bump this week, especially in the tech space. Cisco (CSCO) on Thursday announced a $28B deal to buy cybersecurity firm Splunk (SPLK), a move that Wedbush Securities believes could usher in a "tidal wave" of mergers. Meanwhile, the UK on Friday issued a preliminary approval for Microsoft's (MSFT) planned $69B takeover of videogame publisher Activision Blizzard (ATVI).

Turning to the weekly performance of the S&P 500 (SP500) sectors, all 11 ended in the red. Consumer Discretionary was the top loser, declining more than 6%, while Real Estate slipped more than 5%. Defensive sectors Health Care, Utilities and Consumer Staples fell the least. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from September 15 close to September 22 close:

#1: Health Care -1.18%, and the Health Care Select Sector SPDR ETF (XLV) -1.54%.

#2: Utilities -1.73%, and the Utilities Select Sector SPDR ETF (XLU) -2.54%.

#3: Consumer Staples -1.78%, and the Consumer Staples Select Sector SPDR ETF (XLP) -2.65%.

#4: Energy -2.33%, and the Energy Select Sector SPDR ETF (XLE) -2.93%.

#5: Information Technology -2.63%, and the Technology Select Sector SPDR ETF (XLK) -2.66%.

#6: Industrials -2.69%, and the Industrial Select Sector SPDR ETF (XLI) -3.06%.

#7: Financials -2.79%, and the Financial Select Sector SPDR ETF (XLF) -3.36%.

#8: Communication Services -3.23%, and the Communication Services Select Sector SPDR Fund (XLC) -2.80%.

#9: Materials -3.69%, and the Materials Select Sector SPDR ETF (XLB) -4.09%.

#10: Real Estate -5.36%, and the Real Estate Select Sector SPDR ETF (XLRE) -6.03%.

#11: Consumer Discretionary -6.35%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -6.32%.

Below is a chart of the 11 sectors' YTD performance and how they fared against the S&P 500 (SP500). For investors looking into the future of what's happening, take a look at the Seeking Alpha Catalyst Watch to see next week's breakdown of actionable events that stand out.

More on the markets

• Nasdaq, S&P post worst weekly performance since early March, Dow slides about 2%
• Tighter For Longer - The September FOMC
• Federal Reserve Watch: We Are Doing It
• Treasury Market Plays Catch-Up With Higher-For-Longer Risk
• Tackling The Implications From The Fed Reiterating A Relatively Hawkish Path

Comments

[D. Rockefeller]

With the national debt so high today it isn't the 1980's when they jacked rates to 20%-Volker. My thinking is rolling over the debt at these higher rates is killing the country as payments are approaching the "Defense Budget" and could exceed it and beyond. So....I figure they will have to lower them some or devalue massively by just printing money or cutting spending. Congressional shutdown is about all this because they have driven us right to the brink almost. If they choose money printing hard assets would do well like gold/silver, but if they have to lower some holders of fairly longer term bonds would see a nice rise. Check out the Debt Clock it's crazy what's going on.

[FrankEllis]

@D. Rockefeller
Only those who have not educated themselves are concerned about the "national debt." It is a label, not the same or even similar to personal, state, or municipal debt. Sovereign debt is merely a Treasury bookkeeping label. A sovereign nation can have no actual or real debt. A sovereign nation does not depend on taxes to pay debt. Any debt discussion by politicians is a key reminder that person should not be in an elected position because they fail to understand the concept of sovereign debt. Every investor on Seeking Alpha has the ability to educate themselves, to better understand the difference between the finances of a sovereign nation and the finances of every non-sovereign debtor. Those Congressional representatives merely demonstrate their lack of ability to meet the minimum requirements of their elected position.

[Finding Your Retirement]

SPY 422-425 is the bottoming of wave 4 then 480 for wave 5. Buy calls

[Ra's al Ghul]

The U.S. could be in a recession and we just don’t know it yet www.marketwatch.com/...

[FrankEllis]

@Ra's al Ghul
Until unemployment increases sufficiently to cause a large drop in demand for products, which in turn would result in layoffs of more employees who are unneeded because reduced demand needs less supply, there is no receding demand, no receding economic activity.

[Capital Gains]

20% more to go down on S & P.

[Ra's al Ghul]

@Ganancias de capital well see . .

[Robert NYC]

'Higher-forever' might be the next coming buzz phrase.

Pre the 5 QEs (yes the 5th was during covid) the yield carve was not 'normal' as compared to before 2007.

Should The Fed decide to de-leverage its balance sheet to below $4T (they probably will not because once you get hooked, you get addicted) the future yield curve will be higher than the 2009-2019 period. Possibly forever.

So, as you sit and beg for a Fed rate cut to get your equity portfolio value to increase, remember to not hold your breath.

[FrankEllis]

"The Fed chair highlighted that economic activity had been stronger than all expectations."

So why is Chicken Little worried about the sky falling? Why are the lemmings running off the cliff? Why are the sheep following the imaginary opinion that fantasies about what might happen, but has not yet happened, may never happen, is more important, has greater power over the stock market, than the ECONOMY?

In a rational world, the economy is the stock market. In this dissociated world, rumors of what might happen sometime in the future maybe is embraced by the short-sighted who imagine fear and make believe it is reality. Occurring now is normal and to be expected volatility in the seasonally weak months of September and October, which should be a time of opportunity, accumulation, and expectation. Just beyond this tiny blip in the twenty-year secular Bull cycle is the resumption of the trend which is our friend. Those who are running for the exits will hold tightly to their fear, merely exchanging fear of loss for fear of missing out instead of embracing this time to buy and accumulate share count. Worriers always find something to worry about. Those of a positive state of mind always find better than expected outcomes.

[khlim115]

@FrankEllis I am in your camp but with the gov shut down looming and UAW strike continuing, we are likely to see SPY at 4200 before going up.

[FrankEllis]

@khlim115
All things are possible. There are multiple potential support levels before we could reach 4200. And there again, the gov shut down has no real or direct effect on the corporations of the nation. If is in the imaginations of the market participants, but not in the reality of corporations continuing to make and supply what is demanded by consumers. Why is the recognition of insane politicians not in the awareness of the voters to the same extent as in the imaginings of market participants since they are presumably the same.

Economic activity is unlikely to falter. People will not stop buying food or paying for shelter, or traveling and partying or going to sports and entertainment events because a gov shut down happens. The economic activity of the majority of the population will be unaffected by the shut down and the rampant strikes. In fact, strikes will only occur when the economy is booming, and unemployment is very low. However, because market participants are less than rational, do not pause to consider that news does not affect the everyday running and profits of corporate America, your 4200 may happen. The lemmings and sheep follow the financial media rather than common sense because fear is the most highly developed response of the herd. Due to their backward way of thinking, 4200 or any approach toward is a buying and accumulating opportunity, a means of buying the same unaffected companies at a lower purchase price. The corporations, the economic activity, is stronger than the herd expects, is unchanged by media's program of driving prices down so that big money can accumulate more shares at lower prices. Ride the coattails of big money and accumulate more shares during the fire sale.

[SolYurick]

@FrankEllis Because it's easier to give your assets away than to really think things through. That's why 38% of the market is owned by 1% of people.

[500MPH]

Just the beginning…

[Ramon_13]

Where is Amos Tuck when we need him ?

[SteveX]

Meanwhile the uninformed and uninvested ride this snowball to hell.

[Dale Roberts]

Now investors are believing that rates are higher for longer.

Rates high, stocks not so much.

[BasedCapitalist]

"Higher for longer" was a well orchestrated psyop ordered by the banking cartels and executed with perfection by the state media. As soon as they've squeezed you out of as much as possible everything will be allowed to run up again. Expect a return to optimism soon.

[Diesel]

If we drop to 4200 or below, this will create a nice buying opportunity.

[500MPH]

@Diesel
You’ll do better below 3800

[Ringo338]

Rather get 10% from my oil stocks for the 12-14 months. With Biden sleepwalking, the Democrats will keep spending and real estate will stay empty.

[yoloking1000]

@Ringo338 yep loos like energy is the trade

[SolYurick]

@yoloking1000 till its not anyway

[Jakesben2]

@Ringo338 I made $520k from the futures signals, ..Investing with the right sources pays a lot.