Key Takeaways

  • The S&P 500 index notched its lowest close since May 24
  • Inflation cooled slightly this month according to September’s PCE report

Correction Caution

The S&P 500 capped Friday off with a 0.5% daily loss, dragging the broad-based index into correction territory. An overall weekly dip of 2.53% means the blue-chip index has fallen at least 10.3% from its July 31 peak. Markets consider a drop of more than 10%, but less than 20%, from a recent high as a correction. Any more than a 20% decline is considered a “bear market”.

The pullback comes as investors continue to scrutinize third-quarter earnings results, alongside a mix of other factors such as geopolitical issues and interest rate expectations. For instance, Google parent Alphabet’s stock tumbled more than 9.5% last week, despite the tech titan outperforming Wall Street projections. In this context, it seems the market is looking for more AI and cloud-based developments. 

It’s worth noting that the S&P 500 wasn’t the only index to feel the pressure. The Nasdaq also plunged into correction territory last Wednesday before making a very minor recovery, gaining 0.4% in Friday’s session, largely thanks to impressive Amazon earnings results, which drove a 6.8% surge in the e-commerce giant’s stock. The Dow Jones Industrial Average wasn’t quite so lucky, plunging 1.12% Friday, marking a 2.14% decline in the last five trading days.

Following the Fed

The much anticipated Personal Consumption Expenditure (PCE) reports were announced last week, and the market breathed a sigh of relief. The Federal Reserve’s preferred gauge of inflation increased by 0.4% from August, matching market expectations. Meanwhile, Core PCE, which excludes food and energy, increased by 0.3%, marking a 3.7% increase on a year-on-year basis. 

Although inflation is still above the Federal Reserve’s 2% goal, things are looking up. The Fed closely monitors the PCE reports, as they provide an in-depth analysis of consumer behavior, such as exchanging grocery items for cheaper alternatives. The PCE report provided some semblance of comfort as it drove the Fed’s inflation strategy home, reaffirming the belief that inflation is slowly, but surely, cooling off. 

Speaking of which, the Federal Reserve will meet this Tuesday, Oct. 31. Currently lingering at the 5.25-5.50% mark, policymakers are not expected to raise the benchmark interest rate this time around. 

This week’s economic calendar is packed to the brim, with it being the busiest week of earnings season. Over 1,200 companies are expected to announce their third-quarter revenue, including Apple, the world’s biggest company.  Friday’s release of nonfarm payrolls is expected to see 188,000 jobs created in October, a far cry from September’s impressive 336,000. 

To make a long story short, this week is filled with market-moving updates. Traders should brace for some volatility, which might open up some opportunities for the risk-takers. In the same breath, be sure to adapt to market conditions as they flow with incoming news. Consider your long-term goals, and avoid straying from your strategy to stay profitable.