Market Update 09/12/22

Jason Chen and Mark Amstislavskiy

Domestic stocks saw an overall rise despite tightening monetary policy and international turbulence from Sept. 6 to Sept. 12.

After being closed for Labor Day, the markets reopened on Tuesday, with gains for the industrial, health care, real estate and utility sectors. By the closing bell, The Dow Jones Industrial Average fell 0.55%, the Nasdaq composite fell 0.74% and the S&P 500 fell 0.41%.

Losses were driven by the Federal Reserve’s consistent rate hikes and international turmoil.

Investors’ confidence wavered following the suspension of the Nord Stream 1’s flow into Germany on Sept. 2, in addition to persisting COVID-19 lockdowns in China halting manufacturing centers.

The market rebounded with gains over the next three days starting Sept.7, following the release of the August jobs report. Jobs were added at a slower pace than in recent months, signaling that the Fed’s recent interest rate hikes are beginning to take effect.

The market rallied into Friday’s closing bell, recording the first weekly gain for the three major indexes after four consecutive weeks of losses. The Dow rose 1.19%, the Nasdaq rose 2.11% and the S&P 500 rose 1.53%.

The consumer staples sector continues to struggle with heat waves, affecting supermarkets the most. As a result of the climate, low-quality produce with discolorations and burns is being sold at supermarkets, stoking fears of a drop in consumer spending.

Among notable stocks, health care service company Cardinal Health Inc. is underperforming.

Alongside Amerisourcebergen Corp. and McKesson Corp., Cardinal Health is considered an oligopoly within the healthcare industry, but is losing ground as the other two outperform by more than 800%. The business model of the drug distribution is predicated on making small yet consistent returns, but it has barely changed in its shares over the past 20 years.

Investors blamed it on poor management and investments and want to see the company pursue more profitable services such as specialty medications. As a result, activist investor Elliot Management nominated five new board directors to the company’s board. CEO Mike Kaufman was also fired and replaced by chief financial officer Jason Hollar.

Monday saw the gains continue, as the Dow rose 0.71%, the Nasdaq rose 1.27% and the S&P 500 rose 1.06%. Some investors believe that inflation has peaked, while others say they won’t because of rate hikes.

The Federal Reserve hopes to continue increasing interest rates at its Sept. 21 meeting, as part of its aggressive strategy aimed at lowering demand and moderating inflation.

Fed Gov. Christopher Waller did not specify whether he would back a rate increase of 50 basis points or 75 basis points.

“The consequences of being fooled by a temporary softening in inflation could be even greater now if another misjudgment damages the Fed’s credibility,” Waller told The Wall Street Journal.

Despite gains this week, markets are still highly volatile as domestic and international conditions weigh on investor confidence. Investors will continue to look at developments regarding the war in Ukraine, climate-related issues, energy shortages and lockdowns in China to determine effects on the U.S. market.