S&P falls to worst week in over 1.5 years on September blues, growth worries

S&P 500 (SP500) on Friday fell by 4.25% for a holiday-shortened week that ended at 5,408.42 points, with losses in all four sessions. The accompanying SPDR S&P 500 ETF Trust (NYSEARCA:SPY) fell by 4.14% per week.

There was no beating around the bush – it was just brutal week for Wall Street. The benchmark index posted its worst weekly performance since early March 2023. Its other major average, the Nasdaq Composite (COMP.:IND), fared even worse, recording its worst week since January 2022.

According to Bespoke Investment Group, both indices recorded the worst start to September (first four trading days) since 2001.

The sell-off was driven by concerns about economic growth after a series of weak data points during the week, especially in the labor market. That, combined with historic weakness in September, led investors to pull out of growth sectors like technology and into safe-haven assets like bonds.

The S&P 500 information technology sector fell more than 7% for the week. Meanwhile, U.S. Treasury yields fell as investors bought bonds. The 10-year Treasury yield (US10Y) fell 20 basis points for the week, while the 2-year Treasury yield (US10Y) fell 27 basis points.

Weak manufacturing data greeted investors returning from the long Labor Day weekend on Tuesday, enough to dent the positive sentiment that permeated markets in late August, with Wall Street’s three major indexes finishing their worst day since “Black Monday 2024.”

Then on Wednesday, government data showed that job openings in July fell to a three-and-a-half-year low. Then on Thursday, a report from Challenger, Gray & Christmas showed job losses in August nearly tripled from July. Both sets of indicators soured sentiment ahead of Friday’s key nonfarm payrolls report.

That data finally arrived, showing weaker-than-expected employment gains in August and significant downward revisions to June and July data. The report fueled more growth concerns and also sparked debate among pundits about the size of the expected Federal Reserve rate cut later this month. Attention now turns to next week’s consumer price index report for further clues, although inflation has taken a back seat to concerns.

“There are some jobs reports from recent years that are closely watched by markets, and others that are more secondary. (Friday’s) was the former, and the market reaction left no doubt about the significance of the jobs data,” Rick Rieder, global head of fixed income investment at BlackRock (BLK), said on X (formerly Twitter).

“We can see the market’s focus shifting from inflation to labor market data with term premiums priced in around major data releases. It’s clear that labor market data has overtaken inflation as the top focus for both markets and the Fed.”

“While the latest jobs data is notably weaker, it is still far from a catastrophic indicator of a recession, a hard landing or some dire harbinger of future consumer weakness.”

“Instead, we continue to believe the labor market is slowing on the back of strong post-COVID demand. In fact, almost none of the recent unemployment increases were permanent job losses; rather, they were driven by temporary (weather-related) layoffs in August that reversed this month, and a steady stream of new entrants into the labor market,” Rieder said.

Turning to the weekly performance of the S&P 500 (SP500) sectors, nine of the 11 ended in the red. Technology topped the losers with a 7.1% decline. Staples and real estate were the two winners. Below is a breakdown of the performance of the sectors, as well as their companion SPDR Select Sector ETFs, from the close of August 30 to the close of September 6:

#1: Basic Products +0.56%and the Consumer Staples Select Sector SPDR Fund ETF (XLP) +0.58%.

#2: Real Estate +0.15%and the Real Estate Select Sector SPDR Fund ETF (XLRE) +0.18%.

#3: Tools -0.50%and Utilities Select Sector SPDR Fund ETF (XLU) -0.50%.

#4: Healthcare -2.13%and the SPDR Select Sector Health Care ETF (XLV) -2.07%.

#5: Consumer Discretionary -2.86%and the SPDR Select Sector Consumer Discretionary Select Sector ETF (XLY) -2.52%.

#6: Finance -3.20%and the Financial Select Sector SPDR Fund ETF (XLF) -3.17%.

#7: Industry -4.35%and the Industrial Select Sector SPDR Fund ETF (XLI) -4.24%.

#8: Materials -4.84%and the Materials Select Sector SPDR Fund ETF (XLB) -4.66%.

#9: Communication Services -5.05%and the Communication Services Sector Fund SPDR (XLC) -4.07%.

#10: Energy -5.63%and the Energy Select Sector SPDR Fund ETF (XLE) -5.77%.

#11: Information Technology -7.06%and the Technology Select Sector SPDR Fund ETF (XLK) -7.45%.

For investors interested in tracking the S&P 500 (SP500), we have prepared a list of ETFs that may be of interest to them: (VOO), (IVV), (RSP), (SSO), (UPRO), (SH), (SDS) and (SPXU).

Investors interested in the future should check out Seeking Alpha’s Catalyst Watch report, which highlights key events to watch for next week.