Closing Market Update

Weaker-than-expected consumer sentiment readings combined with continued gains in Treasury yields and the U.S. dollar to fuel a broad selloff Tuesday, sending the S&P 500^® Index (SPX) and the Nasdaq Composite (COMP) to their fifth declines in the past six sessions and their lowest closing levels since early June.

Early Tuesday, the Conference Board reported its consumer confidence index fell to 103 in September from 108.7 in August. The figure surprised analysts, who on average were expecting a number closer to 105.0. It also raised concerns that high interest rates and high inflation may lead to a pullback in consumer spending, which could ultimately push the economy into recession.

Tuesday's weakness featured elements that have grown familiar in recent weeks, as a "toxic trifecta" of historically high Treasury yields, expensive oil, and a strengthening dollar spurred investors to unload stocks, says Kevin Gordon, senior investment strategist at the Schwab Center for Financial Research. The ratio of declining stocks versus gainers—a measure known as "market breadth"—has been poor for much of this month and was particularly weak today, reflecting broad-based selling, he adds.

Kevin notes that some sentiment metrics have started turning lower and could fall further, even with the market already on track to post sizable losses for the month. "We probably need to see more pessimism creep back in for the selloff to run its course," he adds.

Here is where the major benchmarks ended:

• The S&P 500 Index was down 63.91 points (1.5%) at 4,273.53; the Dow Jones Industrial Average (DJIA) was down 388.00 points (1.1%) at 33,618.88; the Nasdaq Composite was down 207.71 points (1.6%) at 13,063.61.
• The 10-year Treasury note yield (TNX) was up about 1 basis point at 4.548%.
• Cboe's Volatility Index (VIX) was up 1.98 at 18.89.

Utilities were the weakest sector Tuesday. The Philadelphia Utility Index (UTY) dropped almost 3% to near a 12-month low. Utility stocks, traditionally favored by some investors because of their relatively high dividend yields, have fallen out of favor as bond yields surged this year. Consumer discretionary shares were also down sharply, perhaps reflecting concern that a slowing economy will prompt consumers to cut back on big-ticket purchases.

The U.S. Dollar Index (DXY) extended a nearly three-month rally and touched a 10-month high. Volatility based on the VIX hit a four-month high.

The following companies had stock price moves driven by quarterly earnings, analyst ratings, or other news:

• Amazon (AMZN) fell 4.4% after the Federal Trade Commission and 17 state attorneys general filed antitrust charges against the e-commerce company, alleging Amazon uses "monopoly power" to raise prices and stifle competition.
• Barclays PLC (BCS) rose 2% after Morgan Stanley upgraded the bank's stock to "overweight" from "equal weight," citing an improved revenue outlook and opportunities for U.S. credit card growth.
• Cintas (CTAS) shares fell 5% after the uniform rental and custodial supply company offered a disappointing revenue forecast. Other quarterly results topped expectations.
• DraftKings (DKNG) rose 2.3% after JPMorgan upgraded the sports betting company's stock to "overweight" from "neutral," saying its recent underperformance had created an attractive entry point for investors.
• Fisker (FSR) shares rose 9.6% after Bank of America initiated coverage of the electric vehicle maker's stock with a "buy" rating, citing the company's "pure-play" exposure in an expanding market.
• Pinterest (PINS) initially bounced higher but ended the day slightly lower after HSBC initiated coverage of the image-sharing company's stock with a "buy" rating and a $32.10 price target, about 24% above its current level, citing confidence in new management.
• United Natural Foods (UNFI) shares tumbled 28% after the company's quarterly revenue missed expectations and its earnings forecast for the coming year disappointed investors.

Other companies expected to report results this week include semiconductor giant Micron (MU) after Wednesday's market close and athletic apparel maker Nike (NKE) Thursday afternoon.

Even before this week, September had been a cruel month for the equity market. Barring a sharp recovery, benchmarks such as the S&P 500 are on track for one of their worst months of the year.

Part of the soured mood stemmed from last week's Federal Reserve policy meeting. Benchmark short-term rates didn't change, but Fed officials warned that another increase could happen later this year. The Fed also lowered its projection for the number of potential rate cuts in 2024.

Investors coming to terms with the Fed's "higher-for-longer" message on rates may also be concerned about the potential for a government shutdown as soon as October 1.

Michael Townsend, Schwab's managing director of legislative and regulatory affairs, says a shutdown looks increasingly likely. While financial markets haven't historically reacted too strongly to government shutdowns, shutdowns "can increase market volatility, and an extended shutdown could have an impact on the overall economy," he notes.

The Conference Board's consumer confidence numbers may have also raised some red flags, potentially casting doubt on the Fed's efforts to engineer a "soft landing" for the economy.

In a statement, the group's chief economist says survey results "showed that consumers continued to be preoccupied with rising prices in general, and for groceries and gasoline in particular." Consumers also expressed concerns about the political situation and higher interest rates.

Recession concerns are also growing. The board's Expectations Index for the next six months dropped to 73.7. Anything below 80.0 may indicate recession. The group's statement says it also reflects "less confidence about future business conditions, job availability and incomes."

"Consumers may be hearing more bad news about corporate earnings, while job openings are narrowing, and interest rates continue to rise—making big-ticket items more expensive," the statement says.

Other economic numbers Tuesday fell short of expectations. New home sales came in at an annual rate of 675,000 in August, down 8.7% from July, according to the Commerce Department. Analysts had expected a number closer to 695,000.