Stocks dipped on Tuesday as traders assessed better-than-expected economic data and prepared for another likely rate hike from the Federal Reserve.
The Dow Jones Industrial Average fell 79.75 points, or 0.24%, to 32,653.20, while the S&P 500 slid 0.41% to 3,856.10. The Nasdaq Composite shed 0.89% to 10,890.85.
All the major averages opened higher but turned negative after job openings in September showed a resilient labor market. The news heightened fears that the central bank may keep its aggressive stance as it fights to tame high inflation.
"Any time you get good news, the market doesn't like it because it just means that the Fed is probably going to be tightening more and potentially for longer," said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research. "We're still in the bad news is good news cycle."
Tuesday marked the start of the Fed's November meeting, which many expect will result in a 75 basis point interest rate hike on Wednesday. Investors will monitor the central bank's statement and Fed Chair Jerome Powell's press conference for signs of a slowing tightening pace.
Some losses were mitigated Tuesday as a better-than-feared earnings season continued with a strong report from Pfizer. Uber shares popped nearly 12% on a revenue beat. Companies this season have grappled with high inflation, rising rates and a strong dollar.
Wall Street is coming off a strong month of gains. The Dow rallied nearly 14% in October, its biggest monthly advance since January 1976 as investors rotated out of technology and into stalwarts like banks. The S&P 500 and Nasdaq Composite added about 8% and 3.9%, respectively.
Almost three quarters (71.4%) of the 21 stocks making 52-week highs in the S&P 500 Tuesday also set all-time records. One, Chevron, is also in the Dow Jones Industrial Average.
Seven S&P 500 stocks set new 52-week lows.
New S&P 500 52-Week Highs:
New S&P 500 52-Week Lows:
— Scott Schnipper, Christopher Hayes
Stocks finished lower as markets prepared for another Fed rate decision due out Wednesday.
The Dow Jones Industrial Average fell 79.75 points, or 0.24%, to 32,653.20, while the S&P 500 slid 0.41% to 3,856.10. The Nasdaq Composite shed 0.89% to 10,890.85.
— Samantha Subin
Investors may be getting a bit too excited about potential changes from the Federal Reserve, according to Lauren Goodwin, economist and portfolio strategist at New York Life Investments.
Goodwin said in a note that she expected the Fed to hike by 0.75 of a percentage point on Wednesday and half a point in December, but that the slowdown should not be seen as the start of a big shift from the central bank.
"A Fed pause is not the same as a pivot. Certainly, deteriorating economic and credit conditions could cause the Fed to pivot modestly at some point, but a full pivot into accommodative territory is highly unlikely in the next year," Goodwin said in a note.
Goodwin pointed out that the first rate hikes should now start to show their impact across the broad economy, instead of just housing. However, the Fed will need several months of data to go its way before changing course.
"At this point, with inflation surprising as much as it has already, the Fed will want to see clear signs of reversal in wage growth before pivoting. Recession should be considered a base case rather than a risk," Goodwin said.
— Jesse Pound
A reliable contrarian indicator is close to flashing a strong buy signal.
The Bank of America Merrill Lynch Sell Side Indicator, based on a survey of Wall Street strategists' asset allocation recommendations, has reached its lowest level since early 2017. The bank said historically, when the indicator was at current levels or lower, subsequent 12-month S&P 500 returns were positive 94% of the time and the median 12-month return was 22%.
"Equity sentiment resumes its descent toward a 'Buy' signal," Savita Subramanian, Bank of America Securities' head of U.S. equity and quantitative strategy, said in a note. "We have found that Wall Street's consensus equity allocation has historically been a reliable contrarian indicator."
— Yun Li
Stocks tied to communication services and consumer discretionary were among the worst performers during Tuesday's session.
As of 3 p.m. EST, both S&P 500 sectors were on pace to close more than 1% lower on the day.
Shares of Alphabet and Netflix shed more than 3% and 1%, respectively. Amazon's stock tumbled nearly 6%. Consumer-focused stocks including Newell Brands, Etsy and Royal Caribbean also moved lower.
— Samantha Subin
Stocks kicked off the final hour on pace for another day of losses.
The Dow shed 39 points, or 0.12%, while the S&P 500 dipped 0.2%. The Nasdaq lost 0.5%.
— Samantha Subin
A solid labor market suggests rates will likely stay elevated for longer, said Oanda's Ed Moya.
"Rates might need to stay higher for longer if the labor market is still healthy and inflation ends up being stickier than markets are initially thinking," he wrote in a note to clients Tuesday, saying that calls for a Fed pivot are "premature."
Following Tuesday's strong jobs opening data, Moya anticipates a hawkish tone from Fed Chair Jerome Powell's press conference Wednesday.
Persisting wage pressures will also make it difficult for inflation to ease, while more job openings suggest the economy is far from slowing, he said.
"The Fed downshift trade could blow up if the labor market refuses to break," Moya said.
— Samantha Subin
Though the short-term market outlook is optimistic heading into the midterm elections, the bottom won't hit until corporate earnings slide further, according to Mike Wilson, chief investment officer at Morgan Stanley.
"We don't think we're going to get enough capitulation," he said of the current earnings season on CNBC's "Halftime Report."
Wilson said recent the recent market movement makes sense following a mixed bag of earnings, but a "reprieve" from hurt companies reporting means the bear market likely isn't over. He said the current earnings season does not say anything about what the market will look like next year.
Still, Wilson predicts the market will look "way better" next year while corporate earnings will be worse. He also said he could see a market low setting in the first quarter of next year if corporate earnings move lower with three "good" quarters following.
Wilson was recently named the best portfolio strategist in an Institutional Investor survey.
— Alex Harring
Risk assets have staged a good run over the last few weeks, but the pace of the rally is problematic, according to Barclays.
"We believe risk assets have now rallied too much, too soon," wrote the bank's global chairman of research Ajay Rajadhyaksha. "After two weeks being tactically neutral, we recommend shorting risk assets again."
Stocks staged a massive comeback recently in anticipation of a potential Fed swivel, but markets are acting overly optimistic given that the recent data hasn't shown a stark shift in inflation, Rajadhyaksha said.
"Risk assets have rallied strongly on anticipation of a pivot by central banks," he wrote. "We think this is by no means clear from recent data; markets seem too optimistic."
— Samantha Subin
Stocks continued moving with earnings season in full swing.
Uber jumped 12% after the company reported revenue that exceeded Wall Street's expectations and gave better-than-anticipated guidance for its fourth quarter. It projected strong bookings growth and adjusted EBITDA of $600 million to $630 million compared to an analyst estimate of $568 million in adjusted EBITDA.
Abiomed surged 50% after the company announced it has agreed to be acquired by Johnson & Johnson for $16.6 billion in cash.
Goodyear Tire fell 13% after the tire company's earnings fell short of expectations due in part to higher costs and a surging dollar.
— Alex Harring
Shares of Snap and Meta Platforms popped following an Axios report that an FCC commissioner is reportedly calling on the government to ban TikTok.
Snap's stock jumped 4%, while Meta Platforms added about 3%.
— Samantha Subin
Borrowing costs have spiraled higher since the Federal Reserve kicked off its rate-hiking campaign in March, eventually bringing mortgage rates to historic highs. Just last week, the 30-year fixed rate mortgage cracked levels last seen in April 2002, according to Freddie Mac: 7.08%.
The cost adds up over time: The total amount of interest paid on a $350,000 30-year fixed-rate mortgage at that 7.08% rate would be nearly $500,000, according to an amortization schedule from Bankrate. That's compared to $250,000 in interest expense back when rates were 3.85% in March.
As the Fed prepares to raise interest rates by another 0.75 percentage point on Wednesday, here are other areas of consumer finance that have since become more expensive.
Credit card debt costs are expected to rise, too. The expense of these debts has already climbed $20.4 billion due to this year's Fed rate hikes, WalletHub found. This could rise by another $5.1 billion this year if the central bank raises its target by 75 basis points this week.
| Type of loan | Week of March 11 (%) | Week of Oct. 28 (%) | Bps change | Source |
| 30-year fixed-rate mortgage | 3.85 | 7.08 | 323 | Freddie Mac |
| Home equity loan | 5.96 | 7.38 | 142 | Bankrate |
| $30K HELOC | 4.27 | 7.3 | 303 | Bankrate |
| Credit card | 16.34 | 18.73 | 239 | Bankrate |
| Used vehicle APR* | 9.11 | 10.33 | 122 | Edmunds |
| New vehicle APR* | 5.23 | 6.27 | 104 | Edmunds |
| Effective fed funds rate | 0.08 | 3.08 | 300 | NY Fed |
Data points for used and new vehicle APRs are monthly and are recent as of September.
— Darla Mercado, Nick Wells
A shift from the Federal Reserve's hawkish monetary tightening stance could push the economy into a "significant" recession, according to Wolfe Research's Chris Senyek.
What happens next depends on Fed Chair Jerome Powell's tone come Wednesday, with a more dovish stance likely to fuel some near-term upside for markets, he wrote in a note to clients Tuesday.
"However, even if this is the case, the Fed is on track to undertake the sharpest tightening cycle since the 1970s," he said. "In our view, this is almost guaranteed to spark a significant (not shallow) recession."
Senyek also doesn't expect the Federal Open Market Committee cut rates until inflation shows it's easing back down to its long-term 2% target.
Markets have rallied over the past few weeks as investors bet the Fed is preparing for a policy pivot.
"The market appears to be defining a "pivot" as a downshift from +75bps hikes to +50bps increases in December & February," he said.
— Samantha Subin
After a strong job openings and labor turnover survey — also known as JOLTS —on Tuesday, the Federal Reserve is likely to stay on its path of aggressive rate hikes.
"Hopes for a Fed dovish pivot are misplaced if today's job openings are any guide," wrote Ron Temple, head of U.S. equity at Lazard Asset Management. "With nearly 1.9 open jobs for each unemployed person, labor market tightness remains a key challenge for controlling inflation."
The JOLTS number and last month's nonfarm payrolls print show that the central bank is far from declaring victory over inflation, he said. That means they can't yet take their foot off the brake.
"Markets may be underestimating where the Fed's terminal rate is and should prepare for further financial tightening," he said.
—Carmen Reinicke
Investors shouldn't expect a year-end rally just because they're entering a seasonally strong stretch for markets, according to Citi.
"No year-end rally in our view," Hannah Sheetz wrote in a Tuesday note. "Seasonals are much stronger when returns are positive through October — this year they are not."
Some investors hope that stocks will jump after this month's midterm elections, which could resolve some market uncertainty, according to the note. However, Citi expects that any outperformance could be "just a normal Santa Claus rally in disguise."
Instead, the strength of the winter rally is likely to be weak given lackluster returns during the summer months. Sheetz said any systematic seasonal strategy investors employ will not be as effective as they hope.
"[A] rotation strategy is mildly profitable when applied across asset classes, but that it is unlikely to work this year given weak summer returns," Sheetz wrote.
— Sarah Min
Billionaire investor Leon Cooperman cautioned that the final bottom of the stock market is yet to come as the economy is poised to hit a recession next year.
The chair and CEO of the Omega Family Office said the market is in a seasonally strong period, but an unfavorable macro environment — the Federal Reserve's aggressive rate hikes, a strong dollar and high oil prices — will still cause a major economic downturn in 2023.
"The market generally drops around 35% from the peak in response to a recession," Cooperman said. "I find many things to do but I really don't like the S&P that much. I don't think the final lows have been hit."
— Yun Li
As Tuesday kicks off the final eight weeks of the year, the leadership of the "average stock" will continue to be a big theme, according to Strategas' Chris Verrone.
"What's been telling about the year is the stability of this trend – the S&P is still off roughly -20% YTD, but the average stock has been the relative winner in both drawdown and rally phases," he said in a note Tuesday.
Defense contractors have been big leaders for much of the year within the industrials sector. Energy "hasn't relinquished its leadership credentials," Verrone added, even with the S&P 500 up 10% or so from its mid-October lows.
"Two pairs that have been seminal in our thinking all year – Tech relative to Energy, and Discretionary relative to Energy – continue to hover near their YTD lows," he said.
— Tanaya Macheel
Metals and oil were gaining as investors watched for a less hawkish stance on inflation with the November Fed meeting kicking off Tuesday.
Spot gold was up 1.2%, with gold futures adding 1%. Palladium, silver and platinum jumped 5.5%, 3.9% and 2.3%, respectively.
Oil was also trading up. U.S. West Texas International and Brent Crude added 3.2% and 2.8%, respectively.
— Alex Harring
Inflation savings bonds, also known as Series I bonds, will pay 6.89% between Nov. 1 and April 30, the Treasury Department said Tuesday. That's down from the prior rate of 9.62% that ran from May through October.
It's the third highest rate since I bonds were introduced in 1998.
Purchases of the bonds, available through TreasuryDirect, are capped at a maximum $10,000 per person each year, and they must be held for at least one year. After that, the last three months' interest is sacrificed if the bonds are sold back to the Treasury before five years.
— Scott Schnipper, Kate Dore
Job openings rebounded sharply in September, indicating that the labor market is still tight.
The number of employment vacancies totaled 10.72 million for the month, well above the 9.85 million FactSet estimate, according to data Tuesday from the Bureau of Labor Statistics. The total was about half a million above the August level.
In other economic data, the ISM Manufacturing index posted a 50.2 reading for October, above the Dow Jones estimate for 50. The index gauges the percentage of business reporting expansion vs. contraction for the month.
—Jeff Cox