September was a rough month in the stock market, as the S&P 500 fell 4.9%. But investors can gain an advantage by understanding the forces that drove certain stocks higher or lower. You can prepare yourself for upcoming market trends by digging deeper beyond the headlines. It's always a good idea to review key trends to ensure that your portfolio allocation is aligned with long-term goals and short-term drivers. These four stocks had major moves last month that illustrate some of the important forces that are influencing the market right now.
1. Target
Target (TGT 0.18%) shares slumped by 12.6% in September thanks to a number of gloomy macroeconomic indicators and headlines. The monthly retail sales data showed weakness in consumer goods, especially automobiles and other durables. Transaction data released by payment processors also suggested a pullback in household spending.
That all coincided with an unexpected slowdown in new housing starts, which is a strongly negative indicator of consumer confidence. It's taken a long time, but high interest rates are finally translating to clear signs of consumer strain. Consumer budgets are tightening as a softening job market is combining with inflation, expensive borrowing costs, and higher lending standards.
That flurry of shaky economic data came on the heels of a tough quarterly earnings season for consumer stocks and retailers. Target was one of several large retailers that published disappointing financial results and gloomy forward-looking commentary in August. Top-line stagnation combined with profit margin compression to paint an ugly picture for cash flows over the next few quarters.
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Target was probably the highest-profile casualty of this trend, but there were several others that shared the drop. Dollar General and Dollar Tree both moved lower as investors grew concerned about their profit margins. Walmart stock held up much better, thanks to its ability to manage through weak periods, but it still dropped. A handful of retailers and consumer stocks were spared losses, but it's an overall bearish signal for the economy as a whole.
2. Boeing
Boeing (BA 0.25%) was another conspicuously weak performer in September, along with several of its major airline customers. The aircraft manufacturer provided forward-looking commentary at an investor conference that caused investors to doubt the company's ability to meet its previous forecasts for the full year.
Boeing sells low volumes of extremely high-cost items to customers that are highly sensitive to economic cycles. Boeing itself has high fixed costs and a debt-heavy balance sheet that that pulls more than $10 billion of cash out of the company in the form of interest and principal repayments.
Boeing also has almost $80 billion worth of inventory on its balance sheet, which can quickly become less liquid during tough times. These factors make the aerospace stock exceptionally sensitive to economic cycles and interest rates, and September's major economic news suggested that we should expect high interest rates and weak aggregate demand for multiple quarters to come.
Major airlines obviously have a different business model from Boeing, but they share some of the same characteristics and key business drivers. September's price charts for major airlines United, Delta, Southwest, and American Airlines were strikingly similar to one another and to Boeing last month, illustrating the powerful market forces that dictate performance for these sorts of companies. Debt-laden cyclical stocks are likely to remain volatile over the next few quarters.
3. Nvidia
Nvidia's (NVDA 6.18%) 12% dip in September wasn't as extreme as some other stocks', but it exerts a ton of pressure on index performance with its trillion-dollar market cap. Semiconductor stocks struggled last month, thanks to growing concerns that demand is weaker than previously forecast, especially in artificial intelligence (AI) applications that have been fueling the sector's returns.
Losses among growth stocks and the tech sector outpaced the market average last month. The Nasdaq Composite index, which is generally heavier on tech and growth stocks, fell 5.8% in September, nearly a full percentage point more than the S&P. The pain was especially bad after the Fed's announcement that interest rates are likely to remain high for the foreseeable future.
Investor risk tolerance deteriorated in September, making it tough for stocks with lofty valuation ratios like Nvidia. The semiconductor powerhouse is the most glaring example of a wider market trend that points to overall bearish sentiment for the time being. Growth investors need to maintain a long-term strategy and prepare for volatility in the short term.
4. Dell
On the other side of the coin, Dell (DELL 0.12%) showed investors that there's still room for optimism in the stock market. Dell crushed Wall Street's revenue forecasts, and reported an upbeat outlook for the next year. That was in contrast to a gloomy report from its rival, HP, which had dampened expectations for all companies in the sector.
Dell's better-than-expected results and explicit focus on the opportunities created by AI were the fuel necessary for the stock to break free of broader market trends, soaring 22.5%.
Dell rose after reporting earnings, it capitalized on investor hype around AI, and it was bouncing back from previously lowered expectations. These were a very specific set of circumstances that caused the stock to overcome macro headwinds. While it won't always be that combination of catalysts, investors should still recognize that returns can be generated when companies report unexpected good news and stock valuations are reasonable.
The stock market might be volatile over the next few months, but it's not all doom and gloom. Stay allocated for long-term growth.
