Wall Street ended the third quarter on a low note, with the Dow, S&P 500, and Nasdaq all experiencing sharp declines in September and for the quarter as a whole. This marked a departure from the previous three quarters of gains for the Dow and S&P 500, while the Nasdaq retreated after two consecutive quarters of advances. Despite these declines, the stock benchmarks have still performed well overall this year, and investors are optimistic about the upcoming fourth quarter, which has historically been the best-performing quarter. However, the Federal Reserve’s decision to raise interest rates and the impact of high rates and energy prices remain significant concerns for equity prices.
The key factor influencing Wall Street’s performance is the Federal Reserve’s stance on interest rates. The Fed recently paused its rate hikes and indicated that there would be only one more increase this year and fewer cuts in 2024 than previously anticipated. The market received some positive news with the softer monthly reading of the core PCE price index, the Fed’s preferred measure of inflation. While the core PCE still exceeds the Fed’s 2% target, the smaller increase indicates a downward trend since September 2022. Investors are hopeful that this will convince the Fed to hold off on any further interest rate hikes as they wait for the effects of prior rate moves to fully materialize.
Looking ahead, there are several factors that will influence the market in the coming week. Key economic data, particularly the nonfarm payroll report, will provide insights into the labor market and wage inflation. Additionally, the market will closely watch ISM reports and factory orders for indications of the manufacturing sector’s performance. On the corporate side, earnings reports from companies like Constellation Brands will be scrutinized for signs of continued growth. Lastly, the ongoing UAW strike against automakers and the possibility of a government shutdown could have lasting consequences for wages, corporate margins, and automation efforts. All these factors will shape the market’s trajectory as investors assess whether to make further investments in an oversold market.