What you need to know…
The S&P 500 Index ($SPX) (SPY) on Friday closed down -0.72%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.55%.
Stocks on Friday extended this week’s losses, with the S&P 500 falling to a 1-3/4 month low and the Dow Jones Industrials and Nasdaq 100 dropping to 2-month lows. Economic growth concerns weighed on stocks Friday, led by a plunge of more than -21% in FedEx after the company withdrew its earnings forecast, citing weakening business conditions.
Stocks recovered from their worst levels Friday after the 10-year T-note fell back from a 3-month high on news that the University of Michigan’s survey on inflation expectations unexpectedly declined.
Friday’s quarterly expiration of stock index futures and options, known as triple witching, led to increased volatility and exacerbated moves in stock prices Friday.
The University of Michigan’s U.S. Sep consumer sentiment index rose +1.3 to 59.5, weaker than expectations of 60.0. However, the University of Michigan's 5-10 year inflation forecast unexpectedly dropped to a 14-month low of 2.8%, slightly lower than expectations of unchanged at 2.9%.
Negative carry-over from a -2.3% slump in China’s Shanghai Composite to a 3-1/2 month low Friday weighed on U.S. equity markets. Chinese stocks fell despite better-than-expected Chinese industrial production and retail sales, which was explained away by the low year-earlier base comparison. Also, China’s housing crisis deepened after China's new home prices in August fell for the twelfth straight month.
Today’s stock movers…
FedEx (FDX) closed down more than -21% Friday to lead losers in the S&P 500 after it reported Q1 preliminary adjusted EPS of $3.44, well below the consensus of $5.10. FedEx also pulled its fiscal 2023 earnings forecast, citing weakness in Asia and challenges in Europe. FedEx also said conditions could deteriorate further in the current period. United Parcel Service (UPS), JB Hunt Transport Services (JBHT), and XPO Logistics (XPO) closed down by more than -4% on the news, and Amazon.com (AMZN) closed down by more than -2%.
International Paper (IP), Westrock (WRK), and Packaging Corp of America (PKG) all closed down more than -11% Friday after Jeffries downgraded the stocks to underperform from hold, citing a “massive inventory glut in containerboard.”
Airline stocks tumbled Friday after Southwest Airlines lowered its revenue expectations on a slowing recovery in business travel demand. Southwest Airlines (LUV) closed down more than -5% after cutting its Q3 operating revenue estimate to up 9%-11% from the same period in 2019, compared with a prior outlook for a gain of as much as 12%. Alaska Air Group (ALK) closed down by more than -4% on the news. American Airlines Group (AAL), Delta Air Lines (DAL), and United Airlines Holdings (UAL) closed down by more than -3%.
Chinese economic concerns weighed on U.S.-listed Chinese stocks Friday. Pinduoduo (PDD) closed down by more than -4%. Also, JD.com (JD) closed down by more than -3%, and Baidu (BIDU) and Alibaba Group Holding (BABA) closed down by more than -2%.
Homebuilders rose Friday as the recent plunge in the stocks attracted dip buyers. Lennar (LEN) and DR Horton (DHI) closed up more than +2%. Also, PulteGroup (PHM) and Toll Brothers (TOL) closed up more than +1%.
Iron Mountain (IRM) closed up more than +3% Friday to lead gainers in the S&P 500 after the Neuberger Berman Real Estate Fund boosted its holdings of the stock in August by 72% to 498,670 shares.
Texas Instruments (TXN) closed up more than +1% Friday after it boosted its quarterly dividend by 8% to $1.24 a share and authorized $15 billion in share repurchases.
Across the markets…
Dec 10-year T-notes (ZNZ22) on Friday closed up +8 ticks, and the 10-year T-note yield fell -0.5 bp to 3.444%. Dec T-notes Friday recovered from a 3-month low, and the 10-year T-note yield retreated from a 3-month high of 3.488%.
Short-covering in T-notes emerged after the University of Michigan’s 5-10 year inflation forecast unexpectedly dropped to a 14-month low of 2.8%, slightly lower than expectations of unchanged at 2.9%. T-notes also garnered support Friday from a slump in stocks that boosted the safe-haven demand for government debt. In addition, a decline in inflation expectations was bullish for T-note prices after the 10-year breakeven inflation rate dropped to a 7-week low Friday of 2.368%.
T-note prices Friday morning initially moved lower on negative carry-over from a selloff in 10-year German bund prices to a 3-month low. Also, the markets have fully priced a +75 bp rate hike at next week’s FOMC meeting.
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