MarketWatch – Dow set for worst week in three months, but S&P 500 to close out best quarter in years

S&P 500 poised for sixth straight monthly gain, best quarter since 2013


U.S. stocks were little changed on Friday, as the latest round of economic data painted a mixed picture of the economy. Major indexes were mostly set for a week of solid losses, though Friday also marked the final trading day of September and the third quarter, and stocks have performed strongly over both periods.

Where are the major benchmarks trading?

The Dow Jones Industrial Average DJIA, +0.15% fell 25 points, or 0.1%, to 26,414, though it briefly moved into positive territory. The S&P 500 SPX, +0.14% lost 4 points to 2,910, a decline of 0.1%. The Nasdaq Composite Index COMP, +0.11% shed 14 points, or 0.2%, to 8,027. Should the decline hold, the Dow will post its fourth decline of the past five sessions, while the S&P is on track for its fifth decline of the past six.

So far this week, the Dow is down 1.2% in what is set to be its biggest weekly loss since late June. The S&P is down 0.7%. The Nasdaq is up 0.4% for the week. Should the Dow and S&P end in negative territory for the week, that would mark their first weekly decline of the past three weeks, but only their third of the past 10.

Friday marks the final trading day of the month of September, a month that has historically been the weakest of the year for U.S. stocks. The Dow, however, is on track for a 1.8% monthly advance, its third straight gain, while the S&P is up 0.3% in its sixth straight monthly advance. The Nasdaq is down 1.1% in September, and poised to snap a five-month winning streak.

Don’t miss: Should investors fear October, a historic ‘jinx month’ for stocks?

Friday also represents the final day of the third quarter. Over the past three months, the S&P has risen 7.1%, which is set to be its biggest quarterly advance since the fourth quarter of 2013. The Dow is up 8.9%; both the Dow and the S&P have risen in 11 of the past 12 quarters. The Nasdaq is up 6.8% over the quarter, and it is set for its ninth straight quarterly gain.

Read: Investors banking on a stock market rally after the election should take a look at this chart

What’s driving trading?

Recent trading has been relatively quiet on Wall Street, with few corporate earnings to drive the market. Despite the market’s loss for the week, the trading range has been tight; the S&P hasn’t closed with a move of even 0.5% in either direction any day this week.

Tesla Inc. TSLA, -12.46%  shares sank 11% after the Securities and Exchange Commission sued Elon Musk, the electric-car maker’s chief executive officer. The SEC is alleging that Musk misled investors when he tweeted that he was considering taking the company private, and it is seeking to ban him from serving in his role of CEO.

The stock has lost more than 22% over the past three months.

While Tesla has a limited impact on the broader indexes — it isn’t a component of the S&P 500 — it is sometimes seen as a proxy for high-risk and high-growth stocks, a segment of the market that have been fueling the market’s gains in 2018. While Tesla’s issues are company-specific, weakening sentiment about the growth space overall could impact the broader market.

Separately, Italy’s antiestablishment government has significantly widened its budget-deficit target for next year to fund its electoral promises, a move that will likely put it on collision course with the European Union. The issue is the latest bit of geopolitical turbulence that could impact Wall Street, following a currency crisis in Turkey earlier this summer.

Don’t miss: Italy’s budget drama: What you need to know

In the latest economic data, consumer spending rose 0.3% in August, the slowest pace since February. Personal income also rose by 0.3%. The 12-month increase in the PCE index, the Federal Reserve’s preferred inflation gauge, fell to 2.2% from 2.3%.

The Chicago Purchasing Manager’s Index fell to a five-month low 60.4 in September, below expectations for a reading of 62. A reading of consumer sentiment came in at 100.1 in September, slightly below expectations.

Issues surrounding trade policy also lingered. On Wednesday, President Donald Trump accused Beijing, without public evidence, of trying to interfere in the U.S. midterm elections and of attempting to damage him politically. The accusations come as a trade dispute between the two countries grows more heated with the imposition of a 25% tariff on more than $200 million of Chinese imports to the U.S.

While investors have repeatedly shrugged off the trade issue, focusing instead of strong economic data and corporate earnings, any additional developments on this front could dictate short-term market direction.

What are market analysts saying?

“Italy has been a big concern for weeks now, and if the situation gets worse, you can expect the market to sell off in a meaningful way. The big issue is contagion: will this spread? If it does, that could trigger a recession, which will drag down European GDP and also have a negative impact for U.S. multinationals,” said Adam Sarhan, chief executive of 50 Park Investments.

“For Tesla, a lot of Musk’s recent actions raise questions about his decision-making abilities,” he said. “If his tweet was just reckless behavior and ego, clearly that will be bad news for the stock. And if this issue means that the Nasdaq, one of the leading indexes this year, starts to turn lower, that would be a real cautious signal to me about growth stocks overall.”

What stocks are in focus?

Shares of Applied Optoelectronics IncAAOI, -13.05%  sank 14% after the company cut its third-quarter revenue outlook.

J.C. Penney CoJCP, -7.80%  said that Chief Financial Officer Jeffrey Davis was resigning, effective Oct. 1. The stock sank 9.8%.

BlackBerry BB, +15.11% shares rose 9.8% after its second-quarter results.

Where are other markets trading?

Major European indexes fell, with Italy suffering its biggest one-day loss in more than two years after its budget issue. Asian stocks mostly rose, with Japan’s Nikkei hitting its highest level since 1991.

Crude-oil prices CLK9, +1.18%  were flat on the day, while gold GCM9, +0.32% was down less than 0.1%. The U.S. dollar index DXY, +0.31%  rose 0.4%.

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