Econified

Now that almost all Q3 earnings reports have come out, investors are able to better understand how the stock market is performing. Here is a summary of major indexes’ performance last week:

• S&P 500 Index – down 1.65%
• Nasdaq Composite – down 2.26%
• Dow Jones Industrial Average Index – down 1.75%
• Russell 2000 Index – down 0.51%

This has certainly not been a very positive week for the stock market as a whole. Investor confidence has decreased across the economy. These decreases may seem mild, but they measure the whole performance of the stock market across a short period of time. It is not a sign that investors are panicking, but it does indicate decreased optimism in future market performance. Last week, the numbers were not as negative, but, without the government reopening, it would have been a similar story.

So, what is going on with the stock market? A lot of this decrease is due to the September jobs report that was released on Thursday. Unemployment rates continued to rise in September with the rate hitting 4.4%. This is a high unemployment rate for the U.S. economy. Econified will dive into this on a later post this week. Another key reason for the decrease is growing concerns that the AI market is in a bubble. While it is true AI-affiliated stocks are priced for growth, it is not necessarily true that they are in a bubble. For example, Nvidia beat earnings predictions this quarter which indicated the stock might just be priced for growth. Additionally, the market is still unsure if there will be an interest rate cut for the Federal Reserve in December. This was a major reason for the decrease in stock prices last week. However, with the jobs report showing that unemployment is still rising, the Federal Reserve will be more likely to decrease interest rates. Decreasing interest rates is intended to help ease unemployment at the cost of raising inflation. It is the Federal Reserve’s job to manage low inflation and low unemployment. While inflation numbers are also high, the Federal Reserve will likely try to tackle this increasing unemployment problem before worrying about inflation.

Industry Changes

Pharmaceuticals: The Pharmaceuticals industry, tracked using Dow Jones’ U.S. Pharmaceuticals Index (DJUSPR), had another great week with weekly returns of 4.35%. This shows strong growth in the industry, and Eli Lilly (LLY) hit a valuation of over $1 Trillion this week. Strong earnings and some favorable approvals by the FDA have allowed this industry to remain profitable despite the rest of the market’s performance.

Financial Services: The Financial Services industry, tracked using Dow Jones’ U.S. Financial Services Index (DJUSFV), was down 1.59% last week which correlates with the rest of the market. This is because weaker employment numbers could significantly impact this industry. However, lending rates are high right now which is good for financial services, so the industry remains profitable.

Technology: The Technology industry, tracked using Dow Jones’ US Technology Index (DJUSTC), was down 2.82% this week which is a sizable hit to the industry. This is likely because of the fears of an AI bubble. Additionally, uncertainty about a rate cut in December hurts the technology industry disproportionately due to the reliance of borrowed money in the industry.

Consumer Goods: The Consumer Goods industry, tracked using Dow Jones’ US Consumer Goods Index (DJUSNC), was down 0.23%. Only being down a little bit is surprising due to the industry being dependent on consumer spending. Consumer spending goes down when unemployment goes up, so I would have anticipated a larger drop in this industry. However, the consumer goods industry has not been keeping up with the rest of the economy this year. As the holiday season approaches, investors are seeking to increase their returns in the more seasonal industry.

Oil & Gas: The Oil & Gas industry, tracked using Dow Jones US Oil & Gas Index (DJUSEN), fell 3.00% last week. Oil & Gas is hit hard by economic uncertainty due to oil & gas’ reliance on other industries. Oil prices were also down last week, and this industry is price-taking. There is not a whole lot oil producers can do when oil prices go down. Due to this, oil & gas stocks tend to fall when oil prices fall.

Parting Thoughts

Looking at the stock market, this was another down week almost across the board. The decrease in the market was mild. However, several weeks of negative performance is not good for investors. November has not been a very positive month for stock returns. As I mentioned last week, the pharmaceuticals industry seems to be an industry unaffected by the rest of the stock market’s performance. Pharmaceutical companies have historically had strong margins, and the industry is recession resistant. Investor sentiment is decreasing which signals stronger growth in more resilient industries.