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U.S. stocks declined Friday, wrapping up a choppy week ahead of next week’s Federal Reserve policy announcement. The Dow shed nearly 300 points while the S&P 500 and Nasdaq logged their second straight weekly losses.
The Dow Jones Industrial Average slid 0.83%, dropping 288 points to 34,618. The S&P 500 fell 1.22% to 4,450, and the Nasdaq Composite lost 1.56% to 13,708. For the week, the Dow eked out a 0.12% gain but the S&P 500 dipped 0.16% and the Nasdaq 0.39%.
Declines were broad-based, with information technology and consumer discretionary stocks leading losses. Software maker Adobe dropped over 4% the day after earnings. Chip equipment stocks sank on a report that Taiwan Semiconductor asked suppliers to delay tool shipments.
Investors are parsing economic data for clues on inflation ahead of the Fed’s September 20–21 meeting. While the Fed is expected to hold rates steady, traders will watch for insights into further tightening. August’s hot consumer price index lowered hopes for a dovish pivot.
“There was initial enthusiasm around inflation data coming in not too far out of expectations. But having digested additional economic data and geopolitical pressures, we’re seeing investors pulling back today,” said AXS Investments’ Greg Bassuk.
Adobe Slumps on Growth Concerns Despite Earnings Beat
Shares of software firm Adobe slid over 4% Friday despite better-than-expected fiscal third-quarter results and guidance. Revenue rose 13% annually while EPS jumped 8%, topping estimates.
But the company expects subscription revenue growth to slow in 2023 amid foreign exchange headwinds from a strong dollar. Adobe also faces integration challenges with its $20 billion Figma acquisition.
Adobe is transitioning its business to the cloud but remains exposed to consumer discretionary spending. While enterprise demand is solid, analysts cautioned that macro uncertainty could weigh on growth next year.
The stock has fallen nearly 30% in 2022 on valuation concerns and rising yields. While Adobe dominates creative software, investors want to see steadier subscription growth and margin expansion going forward.
Taiwan Semiconductor Cuts Tool Orders, Chip Stocks Sink
Chip equipment stocks sank Friday after Taiwan Semiconductor, the world’s largest contract chipmaker, reportedly asked suppliers to delay tool shipments due to weakening demand.
Shares of KLA, Lam Research, Applied Materials and ASML dropped over 3% following the report. Semiconductor manufacturers including AMD and Nvidia also slid as much as 4%.
Taiwan Semiconductor is a barometer for the chip sector. The move signals it expects customers to cut orders for smartphones, PCs and other electronics that use its cutting-edge chips.
Many chip firms are carrying excess inventories after over-ordering during shortages. As demand softens, equipment investment is expected to cool. But the highly cyclical semiconductor sector could rebound strongly when markets stabilize.
Auto Stocks Rise as UAW Strikes Hit Key Plants
General Motors, Ford and Stellantis shares traded higher as thousands of United Auto Workers launched targeted strikes after contract talks broke down.
Around 12,700 UAW members walked off the job at strategic U.S. parts and assembly plants after the automakers failed to reach an agreement by Thursday’s deadline. The union aims to gain leverage in ongoing negotiations.
But the limited strikes seek to pressure automakers without severely disrupting production. GM, Ford and Stellantis assembly plants continue operating normally, minimizing the financial impact.
The UAW seeks higher pay, job security assurances and a path to permanent status for temporary workers. The lengthy 2015 GM strike cost the automaker over $2 billion, giving the union bargaining power. But automakers aim to control costs amid inflation and supply uncertainties.
University of Michigan Survey Shows Declining Long-Term Inflation Views
One-year inflation outlooks tumbled to the lowest since early 2021 as gas prices retreat, according to the University of Michigan’s consumer sentiment report.
Expected inflation over the next 12 months plunged to 3.1% in September, tied with January 2021 as the lowest since the pandemic began. The five-year outlook also fell to 2.7%, matching a nearly two-year low.
Falling pump prices lowered short-term inflation views. But consumers still see pricier food, rent and other costs persistently squeezing budgets. Views on long-run inflation remain elevated versus pre-pandemic.
The Fed targets 2% inflation but has hiked aggressively to curb 40-year high price increases. Cooling inflation expectations support a downshift in rate hikes if sustained. But consumers barely cheered up in September, with sentiment slipping to 67.7.
Rising Rates Require Selectivity Among Homebuilders
Investors must be highly selective when picking homebuilder stocks in a rising rate environment, according to prominent housing analyst Ivy Zelman.
Zelman told CNBC investors should focus on builders gaining market share and generating strong returns and margins. Balance sheet strength is also crucial to weather slowing demand from higher mortgage rates.
The rapid housing boom is cooling as affordability erodes and economic uncertainty grows. Homebuilders with land supply flexibility, competitive positioning and solid execution should outperform.
Lennar, D.R. Horton, and PulteGroup are among builders Zelman favors given their scale advantages and strategy. But the sector faces immense challenges as sales and construction activity moderate from unsustainably hot levels.
Stock Pickers’ Market Requires Earnings Growth Focus
Stocks already experienced an earnings recession but the picture is improving, said Edward Jones’ Mona Mahajan. Upside could return in 2023–2024 as growth normalizes after easier comparisons.
Mahajan told CNBC Q3 earnings emergence from declines should continue growing into 2023 after last quarter’s contraction. But uncertainty persists, requiring selectivity.
“You really have to be a stock picker in this market, and recognize there are companies still generating strong returns and have rock-solid balance sheets,” Mahajan noted.
She sees possible double-digit profit growth in 2024 combined with expanding valuations providing tailwinds after a challenging year. But investors must identify quality companies delivering fundamentals to ride out near-term turbulence.
Bullish Analysts See Upside for UFC-WWE Parent Company
UBS initiated coverage of UFC-WWE parent company Endeavor Group with a buy rating, praising its pure-play exposure to live sports rights and potential synergies.
Analyst John Hodulik set a price target implying 22% upside for Endeavor stock. He cited upside potential from renewals of WWE’s key broadcasting deals starting in 2024 and UFC’s ESPN partnership by 2025.
UFC has thrived on ESPN’s platform, helping Endeavor leverage rights fees and growth potential. WWE content remains hugely popular, providing brands and stable cash flow.
Endeavor acquired UFC in 2016 for $4 billion. It took full control of WWE last year. The combined entity gives it a dominant position in combat sports and entertainment.
But Endeavor holds substantial debt from acquisitions. It must demonstrate a path to deleveraging and revenue growth under the merged entity. Cost-cutting opportunities provide upside levers if executed smoothly.
Utilities Stocks Shine With Biggest S&P 500 Weekly Gains
Defensive utilities stocks delivered the largest S&P 500 sector gains for the week despite broader market weakness. The utilities sector climbed over 3% week-to-date.
Southern Company, Duke Energy and Eversource Energy jumped over 4% each. Demand for staple electricity and gas services holds up better during economic weakness compared to cyclical sectors.
Rising interest rates also increase financing costs for capital intensive utility companies. But investors are drawn to their dividends and stable payouts during turbulent markets.
The outlook for sustained inflation boosts the appeal of utility stocks. Their high fixed costs are easier to pass through to customers over time compared to other sectors more vulnerable to margin compression.
But if inflation drops substantially, tech and other growth stocks could regain their leadership. For now, utilities are shining as bond proxies and defensive plays.
Vanguard: Investors See Stocks Rising Over 12 Months Despite Volatility
Investors expect stocks to return 5.5% over the next year even after the summer downturn, according to Vanguard’s latest sentiment survey. The projection matches June’s outlook when equities rallied.
In the late August survey, 75% of investors remained bullish on stocks while only 9% were bearish. Vanguard said the results show optimism persists about long-term returns despite recent volatility and declines.
Moreover, 77% of investors under age 55 expect robust inflation over the next five years. But even younger investors aim to maintain at least 60% equity exposure. Vanguard interprets this as a belief stocks will provide sufficient inflation-beating returns.
Whether inflation persists at high levels or central banks tame it will significantly sway future returns. But Vanguard found investors confident enough in stocks to ride out near-term turbulence. Time will tell if sentiment shifts amid risks.
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