Eric Criscuolo:

Hello. I'm Eric Criscuolo, market strategist at the New York Stock Exchange, and this is Market Storylines. Every week, we're here to keep you up to date on the key trends and events driving global markets. As we record on Thursday afternoon, let's dive into this week's market storylines. We started the week coming off last Friday's triple-witching when stock options, index options, and index futures expire at the end of the day with a big jump in trading activity. Positions and hedges are adjusted and rolled. With all this movement, it creates space for an expansion of volatility, which since the summer has been very low. We were waiting to see if this would lead to a MVGA movement, make volatility great again. Now we're starting to see some of that, especially with equities deteriorating in afternoon trading as we record this.

The S&P is down about 1% today and just over 1% for the week. It's not entirely shocking, however. The S&P has been up six of the past seven weeks. On Monday, the index closed at another all-time record, but that may prove to be the high point as the index has pulled back over the rest of the week. A brief comment by Fed Chair Powell on Tuesday about stretched valuations may have provided the push to get things moving the other way. The equal-weight S&P is equally negative so the losses seem to be broadly dispersed for the large caps. Mega-cap tech names especially came under pressure this week, although Apple bucked that trend in what may be a catch-up trade given its underperformance this year. Small caps were also hit with selling and the Russell 2000 is lagging the S&P.

Energy has easily been the best performing sector week to date. That's due to crude oil reversing last week's weakness. President Trump's comments at the UN, fading expectations for a Ukraine ceasefire, and potentially stricter Russian sanctions from the US all pushed oil higher. American fighter jets scrambled to intercept Russian jets over Alaska this morning, adding to the geopolitical tone. Utilities, a very defensive sector, is also higher despite the rise in yields. Other important upward-trending names include the Yankees clinching yet another postseason berth, Jaxson Dart getting his first start as Giants QB, and the NHL as its preseason kicks off.

The other nine sectors are flat to lower. Materials is lagging with weakness across the board and some company-specific updates hitting hard. Communication services is also a laggard as mega-caps Alphabet and Meta are down. Alphabet has been on an absolute tear this month, gaining about 20% heading into the week, so a pullback isn't surprising. Consumer discretionary is also lagging with weakness in travel and leisure, retailers, and home builders, while Amazon is down for the week as well.

AI-levered names are also weaker, including Micron, despite solid earnings results. AI news continued to flow across the ticker beyond Micron. Oracle announced it will raise $15 billion in a bond sale. The Stargate Group announced new data center sites. Alibaba announced more spending plans. Microsoft will add Anthropic models to power its AI Copilot, allowing business users to switch between OpenAI and Anthropic. Now here's a fun fact. My colleague and I call our Copilot Goose and we have asked nicely for it to call us Maverick, which it's happy to do. Other high beta, high risk equities are also under pressure. Digital asset treasury companies are mostly lower and the losses are especially steep for the companies buying Altcoins like Hyperliquid and Solana. Part of the reason for the pressure in these names is that interest rates have backed up, despite the Fed cutting short-term rates. Expectations for further cuts are moving lower, especially after solid economic data. The two-year has made a pretty big move up since September 16th, about 15 basis points. The rise in rates also coincides with the strengthening dollar, especially against the yen.

This week's economic data was hawkish overall, showing more strength in the economy than weakness and counterbalancing arguments that new Fed Governor Moran laid out for deeper fed cuts. We'll get to those in a moment. Flash PMIs for September didn't really impact the markets too much. Manufacturing and services indexes both slipped slightly from last month, but remained in expansion territory. Weekly jobless claims were strong, falling from last week, and the final GDP number for Q2 was revised sharply higher from 3.3% to 3.8%, driven by upwardly revised consumer spending. New home sales jumped unexpectedly in August to their highest level since January 2022. We have one more important piece of data to come on Friday, the PCE Index, which is the Federal Reserve's primary gauge for inflation.

There was also a lot of M&A news this week, including Pfizer for Metsera, Patient Square for Premier, Compass for Anywhere, and Thoma Bravo for PROS. Now while summer ended for most people a few weeks ago, the celestial transition to fall for all of us in the Northern Hemisphere actually happened on Monday at 2:19 PM Eastern Time. This turn of the seasonal cycle coincided with another more financially-focused cycle this week: the end of the Federal Reserve's blackout window. Fed officials were released onto our TV and phone screens and offered their comments on last week's decision to cut rates and on their personal economic outlooks.

As we foreshadowed, most of the focus was on comments from the newest Fed official Stephen Miran, who was sworn in right before the Fed meeting and probably enrolled in their 401K plan just in time to lob the only dissenting vote last week. He wanted to cut by 50 basis points instead of the 25-point cut the committee enacted. In his view, the risks to the Fed's employment mandate outweigh inflation risks and he laid out a detailed analysis of factors that he thinks are impacting R-star or the neutral interest rate. Fed Chair Powell also spoke this week and basically stuck to his script, although a comment about elevated asset valuations and a slightly more hawkish tone around the likelihood of future rate cuts were picked up on.

President Trump spoke at the UN General Assembly this week and, among a number of broad topics, pointed his ire at immigration policies and the green energy movement. In discussing Europe, he stated, "Both immigration and their suicidal energy ideas will be the death of Western Europe." He added, "Your countries are going to hell," while also bashing the UN for not coming close to its potential. On more domestic matters, the US government is flying towards a shutdown after Trump canceled the meeting with democratic leaders this week. The deadline is September 30th at midnight.

Now looking ahead to next week, the cycles continue. We'll say goodbye to Q3 and move into Q4, likely triggering another round of repositioning and higher trading activity. Employment data will have a spotlight with weekly claims joined by ADP, JOLTS, and Challenger data and culminating with the key monthly payroll data on Friday. We'll also see ISM, manufacturing and services indexes, and Fed speakers will continue to line the calendar. We also may get a government shutdown. International data includes China's PMIs, European CPI, and interest rate decisions from the Australian and Indian central banks.

I want to thank everyone for spending time with us today. Remember, you can watch Market Storylines on tv.nyse.com or on the NYSE YouTube channel. You can also listen every Friday on the Inside the ICE House podcast feed. Thanks for joining me. I'm Eric Criscuolo. We'll talk to you again next week.