The S&P 500 (SP500) on Friday retreated 2.39% for the week to close at 4,224.16 points, posting losses in four out of five sessions. Its accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) also slipped 2.39% for the week.
It was the benchmark index’s worst weekly performance since the penultimate week in September. Sentiment was primarily weighed down by geopolitical concerns stemming from the ongoing conflict between Israel and Islamist group Hamas, along with a brutal sell-off in bonds that sent Treasury yields soaring and saw the 10-year yield hit the 5% mark for the first time since July 2007.
Also adding to the gloomy atmosphere on Wall Street was hotter-than-expected retail sales data along with mixed commentary from a host of Federal Reserve speakers, chief among them being chair Jerome Powell’s remarks at an event at the Economic Club of New York. Most of the officials hinted that interest rates could be kept steady, leading the market to bolster their bets for no more rate hikes this year.
According to the CME FedWatch tool, the odds of the Fed holding pat on rates at its monetary policy committee meeting at the end of this month has increased to 96.19% from 93.83% a week ago. For the December meeting, the odds have bumped up to 73.12% from 69.59%. Traders will see some central bank action next week in the form of the European Central Bank’s latest policy decision.
Additionally, a busy week saw the third quarter earnings season begin in earnest. Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) rounded out the major banks. The technology sector kicked off proceedings with financial figures from Netflix (NFLX) and Tesla (TSLA). The earnings season will take the spotlight next week amid a deluge of scheduled reports.
“The Q3 earnings season is kicking off, with consensus forecasts calling for S&P 500 (SP500) EPS to be roughly flat Y/Y and +3% Q/Q. With the U.S. economy tracking at an above-trend growth pace in Q3, this earnings hurdle appears undemanding at face value,” JPMorgan’s Bram Kaplan said.
“However, companies are facing headwinds from a stronger dollar and higher rates, our Equity Strategists note that the weakening PMI momentum in Q3 suggests that earnings growth is likely to be outright negative, and softening corporate pricing could lead to a squeeze on margins,” Kaplan added.
Looking at some of the other highlights next week, markets will receive further economic data that will give an idea about the state of the consumer and inflation. The most notable indicators will be the U.S. Q3 GDP report along with personal income and spending data – which includes the personal consumption expenditures index, the Fed’s favored inflation gauge.
Turning to the weekly performance of the S&P 500 (SP500) sectors, nine of the 11 ended in the red. Rate-sensitive sector Real Estate fell the most, while heavyweight growth names Consumer Discretionary and Technology rounded out the top three losers. Energy and Communication Services were the two gainers. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from October 13 close to October 20 close:
#1: Consumer Staples +0.71%, and the Consumer Staples Select Sector SPDR ETF (XLP) +0.70%.
#2: Energy +0.68%, and the Energy Select Sector SPDR ETF (XLE) +0.75%.
#3: Communication Services -0.54%, and the Communication Services Select Sector SPDR Fund (XLC) -0.82%.
#4: Health Care -1.63%, and the Health Care Select Sector SPDR ETF (XLV) -1.64%.
#5: Utilities -2.12%, and the Utilities Select Sector SPDR ETF (XLU) -2.14%.
#6: Financials -2.93%, and the Financial Select Sector SPDR ETF (XLF) -3.04%.
#7: Industrials -3.00%, and the Industrial Select Sector SPDR ETF (XLI) -3.00%.
#8: Materials -3.02%, and the Materials Select Sector SPDR ETF (XLB) -3.01%.
#9: Information Technology -3.13%, and the Technology Select Sector SPDR ETF (XLK) -2.78%.
#10: Consumer Discretionary -4.45%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -4.58%.
#11: Real Estate -4.64%, and the Real Estate Select Sector SPDR ETF (XLRE) -4.63%.
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.