Investors are bracing for a challenging week ahead, given the recent retreat of the S&P 500 and Nasdaq Composite indices, potential government shutdown, key economic data releases, and the resumption of student loan repayments. The S&P 500 and Nasdaq Composite indices have retreated 6% and 8.5% respectively since their peak in July, with the former marking its worst performance since March last week.
The market's recent momentum has been largely driven by a select group of stocks, known as the "Magnificent 7." However, six out of these seven firms closed lower last week, with Meta, Facebook (NASDAQ:META)'s parent company, being the only exception to end at a higher value.
With the quarter drawing to a close, investors are anticipating potential challenges. Key economic data on housing and durable goods are set to be released this week, culminating in Friday's Personal Consumption Expenditures (PCE) report. Adding to the uncertainty is the looming threat of a government shutdown due to Congress's spending disagreements. If no consensus is reached by midnight on October 1st, numerous government employees could be furloughed. This potential shutdown could have an amplified impact on the economy due to the concurrent resumption of student loan repayments after a suspension period dating back to March 2020.
In response to this repayment resumption, Jefferies has downgraded Footlocker and Nike (NYSE:NKE) NKE. The firm predicts that consumers will have less discretionary income for boutique retailers.
Meanwhile, other stocks worth monitoring this week include Costco (NASDAQ:COST), Micron Technology (NASDAQ:MU) MU, Nike and Carnival (NYSE:CCL) Cruise Lines due to their upcoming earnings announcements. Newly public companies Instacart and Arm Holdings (NASDAQ:ARM) are also under scrutiny due to their underwhelming performance thus far, with shares trading at or below their IPO price.
In labor news, the United Auto Workers (UAW) strike continues, while the Writers Guild of America (WGA) has reached a preliminary agreement with top entertainment companies, potentially resolving the Hollywood dispute. However, this agreement does not alleviate the ongoing actors' strike.
Other key developments include rising interest rates on 2, 10 and 30-year bonds, which were all up last week and continue to climb. This has led to a steeper yield curve as longer-duration bond rates have increased more rapidly than short-term bonds. Crude oil prices are hovering just below $90 per barrel, while market volatility has risen by nearly 6% in premarket trading. This increase in volatility is not unexpected given the potential government shutdown, resumption of student loan repayments, and significant economic reports due this week.
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