Dow Closes Worst September In 20 Years, Stocks Plunge As Bear Market Roars

Topline

Markets sank Friday to close a historically bad month and quarter, with the Dow Jones Industrial Average closing 22% below its January 5 peak, as investors continue to fret over tighter monetary policy and set the stage for the Dow’s worst year-to-date performance since 2008.

Wake stocks up when September ends: This was the Dow’s worst monthly performance since March 2020.

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Key Facts

The Dow Jones Industrial Average fell 1.7% on the last trading day of the quarter, ending the week down 2.7%, about 800 points, and the month down 9.2%, nearly 3,000 points.

That is the worst month for the Dow since March 2020, its 10th-worst month this millennium and its worst September since 2002, even worse than its 6% drop in September 2008 during the financial crisis.

The S&P 500 and the tech-heavy Nasdaq closed out similarly brutal months, each dropping 1.5% Friday, bringing both to a 10% loss on the month.

That marks the S&P and the Nasdaq’s worst respective Septembers since 2008 and the first time the S&P declined for three straight quarters since 2009.

This month’s dip in the market is largely attributable to escalating fears that the Federal Reserve will continue to raise interest rates for longer than anticipated policy plans as inflation remains stubborn, and Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, says he doesn’t “think this bear market will be over until the Fed stops hiking rates and even then, it could take some time before a new bull market begins.”

Stocks remain on pace for one of their worst years, with the Dow, S&P and Nasdaq down 21%, 25% and 33% year-to-date, respectively — none of the indices have ended the year down more than 10% since 2008.

Key Background

The S&P fell 4%, its largest single-day loss of the year, on September 13 after data from the Labor Department revealed that consumer prices rose faster than expected in August, with investors expecting further rate hikes from the Fed as it attempts to bring down inflation. Several other economic indicators released this month also demonstrated sticky inflation, with August core inflation surpassing analyst expectations and initial jobless claims hitting their lowest level in five months, a concern for investors as the Fed has expressed the need for the labor market to contract before stopping rate increases. Lael Brainard, the Fed’s vice chair, said Friday that “monetary policy will need to be restrictive for some time,” expressing the central bank’s commitment to not reversing its tightening measures “prematurely.”

Crucial Quote

Bond markets were rattled this week after the British government unveiled a messy plan to reduce taxes, further adding to general skepticism of central banks’ tactics from investors. Sevens Report analyst Tom Essaye wrote in a Friday note that the British government “further [shook] the market’s confidence in the institutions that are supposed to ensure orderly markets and stable economies.”

Tangent

Russia illegally annexed four Ukrainian provinces Friday, and geopolitical risk from the ongoing war in Ukraine continues to weigh on markets. The Russian invasion “continues to add to market volatility, energy insecurity, and downside risks for economic growth,” Mark Haefele, UBS Wealth Management’s chief investment officer, wrote in a Friday note.

Big Number

23%. That’s how much shares of cruise company Carnival sank Friday after the company reported dismal third quarter earnings bringing the stock to its lowest level in 30 years.