Wall Street is contending with another volatile session as investors mull the Federal Reserve’s path of interest-rate hikes while assessing mixed economic data and conflicting earnings reports from major companies.
(Bloomberg) — Wall Street is contending with another volatile session as investors mull the Federal Reserve’s path of interest-rate hikes while assessing mixed economic data and conflicting earnings reports from major companies.
The S&P 500 dropped after swinging between gains and losses. The Nasdaq 100 fell more than 1%. Meta Platforms Inc. plunged as much as 25% as at least three investment banks downgraded the stock after disappointing earnings. But Caterpillar Inc. shares surged the most in two years after the bellwether company highlighted strong buyer demand.
Still, lackluster earnings from big-term firms this week has underscored the impact of the Fed’s tightening regime and consequently, the surging dollar. Amazon.com Inc. and Apple Inc. are among megacap companies slated to report earnings Thursday after hours.
Meanwhile, Treasuries gained, with the 10-year yield pushing below 4% on speculation of a Fed pivot. The dollar pared gains after data showed that US gross domestic product advanced for the first time this year. But the stock and currency markets are digesting this data differently because it’s difficult to tell what the Fed is planning to do next, said Fiona Cincotta, senior financial markets analyst at City Index.
The GDP report showed the US economy rebounded after two quarterly contractions, which briefly assuaged concerns of an imminent recession. But the data also highlighted that consumer spending remains under pressure because of inflation.
“The US dollar is reading into this that perhaps it’s going to keep the Fed on that hawkish path for longer,” Cincotta said by phone. “Whereas the stock market seems to be reading it completely differently, almost as if it’s expecting the Fed to be sort of moving toward that less hawkish stuff.”
Read More: US Economy Rebounds as Consumers, Businesses Show Resilience
In any case, GDP numbers may not provide investors with a complete picture of the current state of the economy because they’re backward looking, said Tom Hainlin, national investment strategist at US Bank Wealth Management. Traders will be more focused on October’s inflation print and the upcoming jobs report for further clues on the Fed’s path of rate hikes, he said.
Economists still expect the Fed to hike by three-quarters of a percentage point for the fourth time in a row when it meets next week.
“The number one driver of capital market performance right now is this discussion of where does the Fed end up with its rate hikes, how long does it stay there, and at what point does it start to reduce those rates once it gets to the inflation level it wants?” Hainlin said by phone. “The second would be corporate profits. Is it a shallow glide lower? Is it a big stair step lower in terms of the outlook for 2023? That’s still unknown.”
More opinions on the GDP data:
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance
“On the one hand, it is good to see that the economy is continuing to grow and that should bode well for the stock market. However, given that we are in the middle of an inflation fight, the Federal Reserve will likely feel that they need to continue to be aggressive in their rate hikes.”
Richard Flynn, managing director at Charles Schwab UK
“Investors may be relieved by today’s GDP figures which exceeded expectations. This announcement follows strong September job data showing that, despite some stress fractures beneath the surface, the labor market remains strong in terms of net jobs created. That has helped bolster consumer spending; the downside is that credit card debt has increased, and savings rates have plunged due to still-hot inflation.”
Stan Shipley, economist at Evercore ISI
“Demands for the economy was fine as real GDP climbed a more-than-expected +2.6% in 3Q. The GDP deflator advanced less than expected +4.1%. The inflation story is probably the most influential part of this release. Attention will now shift to 4Q activity. Despite news stories of layoffs, initial unemployment claims stayed low. For now, the fixed income market is discounting the risk of a near term recession.”
Earlier, the European Central Bank lifted its policy rate by 75 basis points — in line with expectations — and signaled more tightening ahead. The euro fell.
Key events this week:
- Bank of Japan policy decision, Friday
- US personal income, personal spending, pending home sales, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.5% as of 2:56 p.m. New York time
- The Nasdaq 100 fell 1.8%
- The Dow Jones Industrial Average rose 0.8%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 1.2% to $0.9963
- The British pound fell 0.6% to $1.1560
- The Japanese yen rose 0.1% to 146.22 per dollar
Cryptocurrencies
- Bitcoin fell 0.8% to $20,580.49
- Ether was little changed at $1,555.13
Bonds
- The yield on 10-year Treasuries declined seven basis points to 3.94%
- Germany’s 10-year yield declined 15 basis points to 1.96%
- Britain’s 10-year yield declined 17 basis points to 3.40%
Commodities
- West Texas Intermediate crude rose 1.2% to $88.96 a barrel
- Gold futures fell 0.3% to $1,663.80 an ounce
–With assistance from Elaine Chen, Emily Graffeo, Vildana Hajric and Peyton Forte.
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