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S&P 500 Hits 3-Month Low as Economy Angst Climbs: Markets Wrap

S&P 500 Hits 3-Month Low as Economy Angst Climbs: Markets Wrap
Moody’s Investors Service, the only remaining major credit grader to assign the US a top rating, has signaled that its confidence is wavering ahead of a potential government shutdown. Bloomberg's Kailey Leinz reports.

The S&P 500 slid to a three-month low Tuesday as consumer confidence in the economy waned and investors factored in a protracted period of high interest rates. A selloff in government bonds paused while the dollar climbed.

The S&P 500 lost 1.2% as the equities benchmark fell to the lowest since early June after a report showed consumer confidence in the world’s biggest economy stalled this month, falling to 103 from a revised 108.7 in August, and missing the median estimate of 105.5 in a Bloomberg survey of economists.

“Consumer attitudes in recent months appear even more sensitive than normal to inflation generally and gasoline prices specifically,” Stephen Stanley, chief US economist at Santander, wrote, “While the Fed is focused mainly on core, the average consumer is spending a substantial portion of their budget on food and energy and are unwilling to ignore those prices.”

Yields on Treasuries drifted up after dropping back from decade highs. The Bloomberg dollar index advanced following its strongest close since December. Oil resumed its climb, moving back above $90 a barrel.

Separate reports also showed purchases of new homes fell to a five-month low while home prices in the US rose to a record high over the summer as buyers battled over a tight supply of listings. The Treasury’s auction of two-year notes will also be closely monitored.

Tech giants, namely Apple Inc., Microsoft Corp., Amazon.com Inc. and Google-parent Alphabet Inc. dragged on the US stock benchmarks. The threat of tight policy is undoing some of the market’s biggest gains this year in high-flying tech stocks. These growth companies are prized for their long-term prospects but hold less appeal when future profits get discounted at higher rates. That’s reflected in growing short positions against the technology-heavy Nasdaq 100 Index.

Positioning in the Nasdaq 100 is now one-sided net short at $8.1 billion, with all long positions unwound, according to Citigroup Inc. strategists.

Read more: Short Positions Pile Up in Nasdaq Futures, Citi Strategists Say

One Fed speaker after another in the past week has delivered emphatic messages that they will keep policy tighter for longer if the economy is stronger than expected. Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects the US central bank will need to raise interest rates one more time this year.

“Investors are beginning to realize that a ‘higher for longer’ interest rate environment is a likely outcome and are slowly adjusting to the ‘new normal,’” Paul Nolte, a senior wealth manager at Murphy & Sylvest Wealth Management, wrote in a note. “Higher-for-longer has been the mantra of the Fed for a few months. It is only recently that the markets have been taking them at their word.”

Jamie Dimon, chairman and chief executive of JPMorgan Chase & Co., floated the idea US interest rates could reach 7%, a worst-case scenario that could catch consumers and businesses off-guard. Meanwhile, a warning that a US government shutdown would reflect poorly on America’s credit rating from Moody’s Investors Service kept traders focused on an end-of-month deadline.

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Key events this week:

  • ECB’s Philip Lane speaks on monetary policy, Tuesday
  • China industrial profits, Wednesday
  • US durable goods, Wednesday
  • Eurozone economic confidence, consumer confidence, Thursday
  • US initial jobless claims, GDP, Thursday
  • Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
  • Eurozone CPI, Friday
  • Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
  • US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
  • ECB President Christine Lagarde speaks, Friday
  • New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 1.2% as of 11:52 a.m. New York time
  • The Nasdaq 100 fell 1.3%
  • The Dow Jones Industrial Average fell 0.9%
  • The Stoxx Europe 600 fell 0.6%
  • The MSCI World index fell 1.1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.3%
  • The euro fell 0.2% to $1.0572
  • The British pound fell 0.4% to $1.2164
  • The Japanese yen was little changed at 148.92 per dollar

Cryptocurrencies

  • Bitcoin fell 0.6% to $26,129.25
  • Ether fell 0.2% to $1,583.2

Bonds

  • The yield on 10-year Treasuries advanced one basis point to 4.54%
  • Germany’s 10-year yield was little changed at 2.81%
  • Britain’s 10-year yield was little changed at 4.32%

Commodities

  • West Texas Intermediate crude rose 1% to $90.61 a barrel
  • Gold futures fell 0.7% to $1,922.80 an ounce

This story was produced with the assistance of Bloomberg Automation.

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