Rising Rates, Entertainment Industry Developments and Labor Strikes Shake Stocks

Also, market volatility, government shutdown threat and upcoming earnings

• The market faces the challenges of ongoing pullbacks, the risk of a government shutdown risk and the uncertainties of economic data.
• IPOs are struggling as Instacart and Arm Holdings disappoint, potentially affecting future offerings.
• Rising interest rates, the WGA-Writers Guild agreement and the ongoing UAW strike m all influence stock market dynamics.

In recent months, investing has been far from smooth sailing. Since reaching their peaks in July, both the S&P 500 and Nasdaq Composite have experienced significant pullbacks of 6% and 8.5%, respectively. This decline persisted last Friday, with the S&P 500 slipping by 0.2%, culminating in its worst week since March. Meanwhile, the Nasdaq Composite, although only falling by 0.1% on Friday, has seen three consecutive weeks of decline. If either of these indices ends the current week in the red, it will mark the first time this year we've witnessed consecutive monthly declines.

A few select stocks often referred to as the "Magnificent 7" have largely driven the market's recent performance. They are Nvidia (NVDA), Meta Platforms (META), Amazon.com (AMZN), Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL) and Tesla (TSLA)However, even these stalwarts have faced challenges in recent times, with six of the seven closing lower last week. Notably, it was only Facebook's parent company, Meta, that managed to conclude the week on a positive note.

As we near the end of the quarter, the stock market faces potential headwinds. While some buying pressure typically occurs at the close of a quarter, this week presents some potential pitfalls. First, we're about to receive crucial economic data on housing and durable goods. On Friday, the latest personal consumption expenditures (PCE) report should arrive.

Additionally, the government faces an increasing likelihood of a shutdown as Congress grapples with spending. Failure to reach an agreement by midnight on Oct. 1 would lead to furloughs for a significant number of government employees. The economic ramifications of a shutdown would be compounded by the fact that Oct. 1 is also when student loan repayments resume, following their suspension back in March 2020. This resumption of payments has already led Jefferies to downgrade companies like Footlocker (FL) and Nike (NKE) because consumers will have less discretionary income to spend at boutique retailers. Both Footlocker and Nike saw premarket declines of 3% and 1.5%, respectively.

Several other stocks warrant our attention this week. Companies like Nike, Costco (COST), Micron Technology (MU) and Carnival Cruise Lines (CCL) are all scheduled to report earnings. Instacart (CART) and Arm Holdings (ARM), both recent initial public offerings (IPOs), are also under scrutiny. However, their lackluster performances thus far are somewhat discouraging. Instacart closed Friday at $30 per share, below its IPO price of $31, while Arm Holdings closed at $51.32, just above its IPO price of $51. The lukewarm reception for these new offerings raises questions about the appetite for IPOs. A strong demand for new issues is often considered a bullish sign for the market, but with both stocks trading at or below their IPO prices, potential IPO candidates may hesitate. A healthy IPO market generally signals bullish sentiment, but the current market may discourage weaker companies from going public.

While the United Auto Workers (UAW) strike continues, there was positive news overnight for the Writers Guild of America (WGA). The WGA and major entertainment companies reached a tentative agreement that could put an end to the Hollywood dispute if approved. However, the agreement does not address the ongoing actors' strike, with actors and entertainment companies still far from reaching a deal. The positive development in the WGA dispute did boost stocks like Disney (DIS) and Netflix (NFLX) in premarket trading.

In other market developments, interest rates continue their upward trajectory, with rates on 2-, 10- and 30-year bonds climbing last week and edging higher once more. One silver lining amid the rising rates is the steeper yield curve, as rates on longer-duration bonds increased at a faster pace than short-term bonds. Crude oil prices, which have flirted with the $90 per barrel mark, remain just below that level in premarket trading. Finally, market volatility has risen by nearly 6% in premarket trading, with the VIX currently at 18. This uptick in volatility is not surprising, given a convergence of factors, such as the looming government shutdown, the resumption of student loan debt payments and significant economic reports scheduled throughout the week.

In conclusion, it's essential to adhere to your investment plans and long-term objectives in this challenging market. While uncertainties persist, a well-thought-out strategy will help investors navigate the choppy waters ahead.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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