3 Things that Spooked the Market Last Quarter
While investors were treated to new all-time highs in the S&P 500 once again in the third quarter, tricks were still present, enough to wipe out most of the gains in the market by quarter end. Here are some of the things that we saw spook the market:
1) Corporate Earnings Concern
Corporate commentary started to turn more cautious in September. Companies from multiple industries cited profit warnings related to supply chain constraints, margin compression, and increasing inflation, causing investors to become more concerned about the outlook for corporate earnings.
2) Political Influence
Politics once again became an influence on markets, as Democrats unveiled new details on a $3.5 trillion spending package and tax plan that included increases to the corporate tax, personal income taxes for high earners, and changes to capital gains and inheritance taxes. Meanwhile, both parties struggled to avoid default by raising the debt limit.
3) Taper Talk
The Federal Reserve confirmed market expectations that it will likely begin to reduce Quantitative Easing and its crisis-era support of $120 billion in monthly asset purchases before year-end. Many investors believe that the market could have been held up in the last year or so by the Fed injecting money into the economy.
This combination of factors, in addition to other exogenous events, hit stocks hard in late September. The S&P 500 suffered its first 5% pullback in nearly a year, wiping out quarterly gains in most asset classes, and causing the S&P 500 to be roughly flat for the quarter.