Stocks retreat amid $4 trillion options event

Stocks retreated, with Wall Street weighing the latest economic reports ahead of next week’s Federal Reserve decision. Traders also braced for Friday’s $4 trillion triple witching options event – which has the potential to trigger sudden price spikes.

The S&P 500 fell below 4,500. Ford and General Motors dropped as Detroit automakers were hit by a strike.

A news report that Taiwan Semiconductor Manufacturing has asked major suppliers to delay shipment of high-end chipmaking equipment weighed on the industry’s shares. Adobe slipped on a tepid outlook.

Arm rose following its strong Thursday debut.

Production at U.S. factories barely rose in August, restrained by a drop in output of motor vehicles as manufacturers also contend with tepid overseas demand.

A measure of New York state factory activity unexpectedly expanded amid new orders.

A resilient U.S. economy will prompt the Fed to pencil in one more interest-rate hike this year and stay at the peak level next year for longer than previously expected, according to economists surveyed by Bloomberg News.

“Policy works through expectations,” said Neil Dutta at Renaissance Macro Research. “If firms expect a recession to quell inflation, then they pull back on hiring and investment.

“Well, expectations are now picking up. If businesses don’t see a recession ahead, they are going to go ahead and spend on those plans they’ve shelved for the last year. How this is consistent with below-trend growth remains to be seen, however.”

Equity funds saw the biggest weekly inflow in 18 months amid growing investor confidence the U.S. economy is headed for a soft landing, according to Bank of America.

Global stocks attracted $25.3 billion in the week to Sept. 13 – the most since March 2022 – according to EPFR Global data cited by BofA.

But amid the renewed optimism on the U.S. economy, strategist Michael Hartnett sees a bearish broader picture, with cash and Treasuries having attracted the bulk of inflows and both asset classes on track for a record year.

Elsewhere, China’s economy picked up steam in August as a summer travel boom and a heftier stimulus push boosted consumer spending and factory output, adding to nascent signs of stabilization.

Industrial production and retail sales growth jumped last month from a year earlier, blowing past expectations, while the urban jobless rate eased slightly.