SPY SPDR S&P 500

The rally surrounding tech stocks has driven the S&ampP 500 index higher by 12.6% in the first nine months of 2023. Comparatively, the tech-heavy NASDAQ Composite index is up over 27% year-to-date.

However, in recent trading sessions, Wall Street analysts and stock market investors remain wary of a sluggish macro economy, lower consumer spending, higher interest rates, and elevated inflation, dragging share prices of companies across sectors significantly lower.

Let’s see why the S&ampP 500 and other equity indices might remain volatile in Q4 of 2023.

Consumer savings are on the decline

Citigroup (NYSE: C) CEO Jane Fraser has noted a change in spending habits among lower-income consumers as they attempt to stretch their diminishing savings, revealing this insight during an interview with CNBC’s Sara Eisen. Citigroup, America’s third-largest bank, has been closely observing the financial behaviors of its credit cardholders for early signs of financial strain.

Fraser highlighted emerging issues among consumers with lower FICO scores, indicating that the surplus savings accumulated during the pandemic are nearing exhaustion. The shift in financial stability can be attributed to the substantial financial assistance provided by the U.S. government to households and businesses during the COVID-19 crisis. This influx of funds contributed to the economy’s resilience, defying many initial projections.

However, the ongoing series of interest rate hikes by the Federal Reserve, the most vigorous in 40 years, has increased the cost of credit card debts, mortgages, and auto loans. Consequently, incidents of late payments and defaults are on the rise.

In discussing the broader economic landscape with Fraser, other corporate executives have echoed concerns beyond artificial intelligence and labor shortages. They’ve shared observations of a softening demand, signaling potential economic headwinds ahead.

Student loan to resume for 40 million Americans

The moratorium on federal student loan repayments, a relief that has been in place since the onset of the pandemic, is set to conclude this Sunday. This change is set to affect approximately 40 million Americans, who will now be obliged to resume payments that have been on hold for over three years.

The reintegration of this financial obligation carries an air of unpredictability for individual households and the broader economy. There is no historical reference to gauge the potential impacts of such an extensive pause in loan repayments. As the Biden administration initiates the process of collecting over $1.7 trillion in federal student loans, both retail sectors and financial institutions are preparing for potential economic turbulence.

Jefferies, a prominent financial services company, has expressed concerns regarding the impending risk to consumer spending due to the resumption of student loan repayments. A recent survey conducted by the firm involving approximately 600 student loan recipients showed that half of the respondents harbored significant concerns about their ability to cover all their expenses once loan payments recommence.

The survey also indicated behavioral shifts in spending, with about 70% of borrowers intending to delay significant purchases beginning in October. Additionally, many individuals with student debt are expected to reduce their clothing, travel, and dining expenditures.

The lift of the repayment freeze introduces an element of financial strain and adaptation, the effects of which on the broader economic landscape remain to be fully realized.

Jobs market update

This week, investors will receive new insights into the state of the labor market, beginning with the August Job Openings and Labor Turnover Survey (JOLTS) release on Tuesday.

Following that, on Wednesday, ADP (NASDAQ: ADP), a prominent payroll provider, will publish its National Employment Report for September, offering a detailed account of private sector payroll expansions.

These preliminary reports will lead to the unveiling of the nonfarm payroll data for September on Friday, providing a comprehensive overview of the employment landscape.

Though still robust and nearing historic peaks, the job market has started to feel the impacts of the Federal Reserve’s rate hikes. While still strong, hiring is showing signs of slowing, marking a testament to the enduring strength and adaptability of the job market in the face of economic adjustments.

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