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The major U.S. stock indexes settled mixed last week with the S&P 500 Index and Dow Jones Industrial Average finishing lower for a third straight week and the NASDAQ Composite edging higher. At the same time, government bonds closed higher, helping to smooth out the volatility for investors with balanced portfolios.
In the cash market last week, the benchmark S&P 500 Index settled at 2952.01, down 0.30%. It’s up 17.8% for the year. The blue chip Dow Jones Industrial Average closed at 26573.72, down 0.90%. Its annual gain is 13.9%. The technology-based NASDAQ Composite finished at 7982.47, up 0.50%. In 2019, it’s up 20.3%.
General Causes of Last Week’s Volatility
Last week’s price action was driven by a combination of slowing economic data and geopolitical risks that led to elevated volatility. However, the overall fundamentals appeared to be strong enough to remain constructive. These events helped produce a two-sided trade last week.
“Cyclical sectors led the way on the downside as a string of disappointing U.S. economic data fueled worries that a slowdown in manufacturing will spread to other parts of the U.S. economy,” stated Nela Richardson, PHD, an Investment Strategist at Edward Jones.
“The Purchasing Managers’ Index showed that manufacturing activity contracted in September for the second month in a row. The services index also declined but remained in expansion territory. Topping off the data was September’s jobs report, which provided some assurance that despite a slowdown in hiring, the labor market remains tight, a positive for consumers and the economy,” she added.
Headed Toward Modest Growth or Recession?
The question remains, “Is the U.S. moving into a period of modest growth, or toward a recession?” At this time, investors are in the midst of the longest economic expansion in U.S. history and the second longest and strongest bull market. However, at times, it doesn’t feel that way due to bouts of heightened volatility caused by economic uncertainty. This is causing some bullish investors to step back and reconsider whether we’re seeing early signs of the end of the expansion and the bull market.
Not a Bad Economy, Just a Slowing Economy
Stocks sold off last week after the release of a weaker-than-expected ISM Manufacturing PMI report. In my opinion, the selling pressure was more of a precautionary move, or position-adjustment as investors shaved positions in risky assets and placed their funds in safe-haven assets.