Stock Market Ends an Ugly Quarter With Another Volatile Day

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Stocks slid on Friday, closing out the third quarter at a loss, the first time Wall Street has posted three consecutive quarters of losses since the aftermath of the global financial crisis more than a decade ago.

The S&P 500 slumped in afternoon trading to close 1.5 percent lower for the day, a move that came after a bout of turbulence following the release of another hotter-than-expected inflation reading. Persistent inflation raises the risk that the Federal Reserve, which has already rapidly increased interest rates to try to temper the pace of price rises, will need to raise rates even higher and wind up inflicting too much damage on the economy.

Raising rates works to reduce inflation by increasing borrowing costs for consumers and companies. That’s important for the long-term health of the economy but it is typically bad for stock prices, as higher costs crimp earnings.

The S&P 500 notched its third straight weekly fall and its third straight quarterly slump, the kinds of persistent losses investors haven’t faced since 2009. The S&P 500 ended the three months through September more than 5 percent lower, with a year-to-date loss of almost 25 percent. The index lost more than 9 percent in September alone, making it worst single month since the pandemic-induced sell-off in March 2020 and the worst September on record since 2002 and the dot-com bust.

“The conditions are not yet in place for a sustained turn in market sentiment,” said Mark Haefele, chief investment officer of UBS Global Wealth Management. “In our view, such an improvement will require compelling evidence that the threat from inflation is receding.”

The stock slide caps a wild week of trading, with a new crisis for investors coming from Britain after a proposed tax cut stoked inflation fears and raised concerns over the country’s borrowing needs. It sent the British pound down sharply and government bond yields soaring.

By the end of the week, emergency intervention by the Bank of England had soothed markets, reducing government bond yields and pushing the pound back close to levels it had attained before the proposals.

The whipsaw moves highlighted the challenges facing central banks around the world as they try to contain inflation and unwind pandemic-era bond-buying that had supported markets.

Investors have been jolted from a slumber induced by a decade of low interest rates, with government bond yields rising substantially all year. In the United States, the yield on the two-year Treasury bond, which is sensitive to changes in Fed policy, has surged 3.5 percentage points this year to 4.24 percent, with a hefty 1.28 percent rise in the third quarter alone. It puts the yield on course for its biggest yearly increase on record.

The surge in interest rates has also knocked corporate bonds and risky leveraged loans, sending prices lower as borrowing costs for companies rise.

Summing up the year so far, analysts at Bank of America wrote in a research note to their clients that the disorder in markets reflected a “painful regime change,” listing a host of global shifts underway, including the move from an era of deflation to inflation.

Higher rates and higher yields, as well as the United States’ relative economic health when compared with that of other countries around the world, have drawn investment to Wall Street, helping strengthen the dollar when compared with currencies that represent major U.S. trading partners. By that measure, the dollar has just experienced its biggest quarterly rise since the first quarter of 2015 and is the strongest it has been in two decades.

Elsewhere, Europe’s Stoxx 600 ended the quarter almost 5 percent lower. In Japan, the Topix index fell 1.9 percent for the three months to the end of September, while the mainland stock index in China — the CSI 300 — fell more than 15 percent.



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