Stocks drop on Fed policy, jobs data in focus

Stocks lost ground on Tuesday as more earnings and economic data points arrived and investors awaited the outcome of the Federal Reserve’s policy meeting.

The S&P 500 (^GSPC) was down about 0.4% during today’s session, while the Dow Jones Industrial Average (^DJI) was down about 0.2%. The tech-heavy Nasdaq Composite (^IXIC) fell 0.9%. All three indexes rose to start the session before falling.

Investors digested economic releases on Tuesday, including the Job Openings and Turnover Survey (JOLTS), which found job openings rose unexpectedly in September to 10.7 million against 10.28 million last month. Economists expected openings to decline to around 10 million, which would have been in line with the kind of cooling the Federal Reserve wants to see in the labor market.

Meanwhile, the ISM manufacturing PMI for October fell to 50.2, while economists polled by Bloomberg estimated it at 50.0. The ISM manufacturing employment index fell from 48.7 to 50.0, while economists polled by Bloomberg put the estimate at 53.0.

The stock moves came after major indexes lagged on Monday as investors braced for the Federal Reserve’s interest rate decision on Wednesday.

“Although stocks are off their lows since mid-October, the rally hasn’t quite been enough to bring the S&P 500 back to its levels of the last Fed meeting,” wrote Jake Gordon, analyst at Bespoke Investment Group, in a Note.

“The S&P 500 finds itself lower again between meetings, making this the eighth time in the past ten that it has traded lower between meetings. That said, the current decline has been much more modest. that some of the historic declines like the 13% drop before the June meeting,” Gordon added.

The Fed’s aggressive pace of raising interest rates has pressured markets for much of the year, leaving investors hopeful for any sign that the central bank will back out of its hawkish stance.

The Fed is expected to raise interest rates by 75 basis points on Wednesday after its two-day policy meeting, but some strategists see the bank slowing the pace of increases going forward.

JPMorgan economist Michael Feroli sees “a drop of 75 basis points to 50 basis points and then to 25 basis points before the end of this tightening cycle. Any indication from the Fed that [the] terminal rate is lower or that the tightening cycle ends in 2022 is likely to [be] digested on the rise by equities. The biggest risk to this view is that the CPI will be warmer than expected next week or in December.”

Regardless of the magnitude of the December decision, “the Fed is in a difficult position because it is very dependent on data. And there’s no telling how fast inflation will come down,” Lisa Erickson, head of the public markets group, told Yahoo Finance Live on Monday.

On the earnings and business front on Tuesday:

  • Uber (UBER): The ride-sharing giant posted a loss in the third quarter, but beat analysts’ estimates for revenue and saw an increase in bookings. Shares rose more than 14% in early trading.

  • Pfizer (DFP): The drugmaker posted a better-than-expected quarter and raised its revenue outlook for the year despite higher prices offsetting slower demand for COVID-19 vaccines outside the United States.

  • Sofia (SOFI): The digital bank reported a quarterly loss and revenue below expectations, beating analysts’ estimates. The fintech company raised its guidance as the company added 4.7 million more customers at the end of the third quarter.

  • Eli Lilly and company (THERE IS): The pharmaceutical company beat third-quarter expectations but cut its outlook for 2022, citing currency exchange rates and tax laws.

  • Abiomed (AMDD): The maker of small heart pumps has agreed to a nearly $17 billion takeover by Johnson & Johnson (JNJ) as the deal gives J&J exposure to a high-growth segment of medical technology.

  • Airbnb (ABNB): San Francisco-based Airbnb reported third-quarter earnings above estimates but forecast fourth-quarter revenue below market estimates.

  • Advanced micro-systems (AMD): The chipmaker released third-quarter results that beat expectations despite the warning in October that weaker PC sales were affecting the quarter’s results.

And the week will end with the October jobs report. The Labor Department report is expected to show the monthly payroll falling below 200,000, while economists polled by Bloomberg estimate that 190,000 jobs were added or created last month.

In energy markets, Brent crude, the international benchmark for oil prices, fell to $94.36 a barrel on Tuesday morning. Yields on 10-year Treasuries fell 12 basis points below 4% before rising above that level later in the morning.

U.S.-listed shares of Chinese companies including Alibaba (BABA) also surged on Tuesday as unconfirmed reports on social media indicated the Chinese government may be moving towards abandoning its strict policy in matter of COVID.

Elsewhere, the Toronto Stock Exchange resumed trading after a technical glitch halted trading shortly after the opening bell on Tuesday.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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