In a tumultuous day for the stock market, a sell-off in major technology companies led to a decline in stocks, exacerbated by geopolitical concerns and speculation about a smaller rate cut by the Federal Reserve next month.
The S&P 500 dropped 1%, breaking a four-week winning streak. Alphabet Inc. saw a 2.4% decline after a ruling that it must lift restrictions on developers competing with its Google Play Store. Oil prices surged above $80 a barrel due to escalating tensions in the Middle East. Treasury yields continued to rise, with the 10-year yield reaching 4% following strong jobs data on Friday.
Concerns about the Fed’s rate cut plans and geopolitical tensions have investors on edge. Dave Sekera at Morningstar warned of a potential risk-off trade if geopolitical tensions escalate further, with growth stocks likely to underperform value stocks.
Despite the overall market decline, some sectors fared better than others. Energy shares were the exception, with every other major sector in the S&P 500 experiencing losses. The VIX volatility index spiked to a two-month high, while Treasury yields rose and crude oil prices climbed.
Wall Street analysts are divided on the market outlook, with some turning more optimistic based on strong economic data and expectations of further rate cuts from the Fed. However, concerns about geopolitical risks and overvalued sectors remain.
Looking ahead, corporate earnings reports are expected to drive market volatility in the coming weeks. The third-quarter earnings season is anticipated to be favorable for active investors, with options market pricing in significant post-earnings moves for individual stocks.
Key events this week include speeches from Fed officials, CPI data, and the start of earnings season for major banks. Investors will be closely monitoring corporate results for insights into the economic outlook and market trends.
Overall, despite recent market turbulence, strategists remain upbeat on the outlook for US equities, citing favorable economic conditions and accommodative monetary policy. However, navigating the current market environment presents challenges, requiring a cautious approach to risk management.