Market Insights

Stocks face continued pressure as interest rates rise and geopolitical risks mount.

The S&P 500 fell 2.4 percent between Friday, October 13, and Friday, October 20. The index ended the week at its lowest level since June 1, erasing all its gains since Congress raised the debt ceiling. Fourth-fifths of its members lost value.

Last week’s bearish news was broad, touching on economics, geopolitics and earnings.

The economic news showed strong growth in the U.S. Retail sales beat estimates for the third straight month and initial jobless claims fell to their lowest level since January. That argued against a slowdown and pushed borrowing costs to their highest in more than a decade. Mortgage rates hit levels last seen in 2000.

There were two kinds of geopolitical risk. First is the potential for an Israeli invasion of Gaza following Hamas’ terrorist attacks on October 7. That’s keeping investors worried about energy prices and a broader escalation.

Second, trade relations with China continued to worsen as Washington blocked the export of advanced semiconductor technology. Beijing responded with restrictions on materials needed for electric-vehicle batteries.

Quarterly results have also been unimpressive so far. Tesla (TSLA) missed estimates for earnings and revenue, while CEO Elon Musk gave cautious guidance about its coming Cybertruck. United Airlines (UAL) also plunged to a new 52-week low on worries about higher fuel costs and travel disruptions related to turmoil in the Middle East.

Green Energy Struggles

Last week was especially bearish for solar-energy stocks after SolarEdge Technologies (SEDG) preannounced revenue about 20 percent below consensus. Management cited “substantial unexpected cancellations” in Europe.

Moderna (MRNA) also fell on weak demand for coronavirus vaccines.

Netflix (NFLX), on the other hand, jumped after beating forecasts. The streaming-video company boosted paid subscribers by cracking down on shared passwords.

Aside from solar energy, Chinese stocks fell the most last week amid the geopolitical tensions.

Airlines, semiconductors and consumer discretionaries also lagged.

Precious metals and energy outperformed as fear increased amid the global tensions.

Consumer staples, a traditional safe-haven, were the only other sector to advance.

Charting the Market

Last week’s price action gave potentially negative signs for the S&P 500.

First, the index briefly pushed above its high on October 12 before turning lower. The resulting bearish outside week could suggest weakening of the longer-term trend. The S&P 500 has also made lower weekly lows and lower highs since the summer.

Second is the shift in sector performance. Risk-on groups like consumer discretionaries and semiconductors led for most of 2023, but they’ve underperformed in the last two weeks.

Third, the S&P 500 closed below 4325. That was a peak from August 2022, where the index tried to build support over the summer. A return below that level could reflect a weaker uptrend. Traders could now eye the 200-day moving average as another important level.

Finally, Cboe’s volatility index (VIX) ended last week at its highest level since late March. Further increases could be negative for sentiment.

The Week Ahead

Earnings get more active this week, with about one-third of the S&P 500 issuing results. There are also some big economic reports.

Cadence Design (CDNS) is the main company announcing numbers today.

General Motors (GM), Microsoft (MSFT) and Coca Cola (KO) are some of the big names tomorrow.

Wednesday features new home sales and crude-oil inventories. Meta Platforms (META), Boeing (BA) and International Business Machines (IBM) are the most prominent companies issuing results.

Thursday’s the busiest session of the week. The Commerce Department announces gross domestic product (GDP) for the last quarter. Initial jobless claims and durable-goods orders are also due. Amazon.com (AMZN), Intel (INTC), Ford Motor (F) and United Parcel Service (UPS) report earnings.

Friday brings the personal consumption expenditures (PCE) deflator, an inflation measure watched by the Federal Reserve. Exxon Mobil (XOM) and Chevron (CVX) announce results.