Stocks experienced a decline as volatility increased due to a significant options event and concerns emerged over a strike impacting Detroit automakers. Big tech companies, including Nvidia Corp. and Meta Platforms Inc., saw losses of over 3.5%. The S&P 500 erased its gains for the week, and the Nasdaq 100 dropped almost 2%. A report that Taiwan Semiconductor Manufacturing Co. has asked major suppliers to delay shipment of high-end equipment led to a decline in chipmakers. Ford Motor Co. and General Motors Co. experienced significant fluctuations. Treasury yields rose, while the dollar remained relatively stable.
The VIX, a widely watched gauge of equity volatility on Wall Street, increased from its lowest level since 2020.
At the same time, a large number of derivatives contracts tied to stocks and index options and futures expired, leading traders to adjust their positions or initiate new ones. This coincided with the rebalancing of benchmark indexes like the S&P 500, resulting in increased share transactions.
Market analyst Callie Cox at eToro explained that options expiration has a powerful effect on market moves, particularly in individual stocks where trading in shares and options can be thin. Cox advised investors to expect swings, but not to exit the market until there is convincing evidence of a recession.
The challenges facing the labor market, including the United Auto Worker strike and the potential government shutdown, are causing concern for markets, according to Mark Hackett, chief of investment research at Nationwide. Hackett noted that if the strike expands, it could have an impact on the broader economy, supply chains, and corporate profit margins.
Ian Lyngen at BMO Capital Markets suggested that while the Federal Reserve may not respond to a single strike, the overall pattern of workers demanding higher wages could result in higher interest rates for a longer period to moderate labor demand.
In economic news, U.S. inflation expectations dropped to the lowest level in more than two years as consumer sentiment about the economic outlook improved. However, sentiment fell below the median estimate in a Bloomberg survey. New York state factory activity unexpectedly expanded, but factory production remained stagnant due to a decrease in motor vehicle output.
Economists surveyed by Bloomberg News suggested that a resilient U.S. economy would lead the Federal Reserve to consider one more interest rate hike this year and maintain the peak level into next year for longer than previously anticipated.
Bank of America Corp. reported that equity funds saw the largest weekly inflow in 18 months, as investor confidence in a soft landing for the U.S. economy grew. Global stocks attracted $25.3 billion in the week ending September 13th, the highest amount since March 2022.
Corporate highlights include Charles Schwab Corp. experiencing a decline in net new money due to attrition from clients during the integration of TD Ameritrade. Planet Fitness Inc.’s CEO departed, Adobe Inc. met sales expectations but disappointed investors with its revenue outlook, and Walt Disney Co. received offers for its non-core assets. Discover Financial Services is considering selling its student-loan business to streamline operations following regulatory issues. Grocery delivery business Instacart is preparing for its initial public offering.
Overall, stocks fell, volatility increased, and concerns over the auto strike and labor market challenges weighed on investor sentiment. However, a resilient U.S. economy and growing investor confidence contributed to inflows into equity funds.
Sources: eToro, Nationwide, BMO Capital Markets, Bloomberg News, Bank of America Corp.
