Last Updated 4:11 PM EST
Stock indices finished today’s trading session in negative territory. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 fell 0.39%, 0.75%, and 1.22%, respectively. October turned out to be an enjoyable month for index investors, especially those who are invested in the Dow Jones. Indeed, it had its best month since 1976, as it rallied by almost 14%.
The communications sector was the laggard, as it fell 1.65%. Conversely, the energy sector was the session’s leader with a gain of 0.83%.
Furthermore, the U.S. 10-Year Treasury yield climbed to 4.06%, an increase of more than four basis points. However, the Three-Month Treasury yield remained flat, as it hovers around 4.087%. This brings the spread between them to -2.7 basis points.
Compared to yesterday, the market is pricing in a higher chance of a higher Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 4.25% to 4.5% decreased to 44.3%, which is down from Friday’s expectations of 48.2%.
In addition, the market is now also assigning a 50.6% probability to a range of 4.5% to 4.75%. For reference, investors had assigned a 43.4% chance Friday.
Stocks are Negative Heading into the Close
Last Updated at 3:00PM EST
Stocks are in the red heading into the final hour of today’s trading session. As of 3:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.3%, 0.7%, and 1.2%, respectively.
In addition, WTI crude oil is lower today, as it hovers around the mid-$86 per barrel range. The commodity’s overall downtrend has caused prices at the pump to decline when compared to last week.
Indeed, the national average for regular gas was last $3.762 per gallon, down from last week’s reading of $3.793. This is significantly lower than the all-time high of $5.016 per gallon on June 14.
The highest prices can be found in California, where prices are substantially higher than the national average, at $5.566 per gallon. On the other hand, Georgia is the state with the lowest gas prices, at $3.152 per gallon.
It’ll be interesting to see if this downward trend will continue going forward as the Federal Reserve looks to raise interest rates to fight inflation while oil producers lower production in order to maintain the price.
Stocks are Negative; Eurozone Inflation Continues to Accelerate
Last Updated 12:05PM EST
Equity markets are in the red halfway into today’s trading session. As of 12:05 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.2%, 0.5%, and 1%, respectively.
On Monday, Eurostat released its preliminary estimate for Eurozone inflation. The Eurozone Consumer Price Index (CPI), which measures the change in the price of goods and services from a consumer’s perspective, came in hotter than expected. Economists had forecast growth of 10.2%. Unfortunately, the CPI print was 10.7% on a year-over-year basis.
This marks yet another accelerating increase in the Eurozone inflation rate. Indeed, the CPI growth rate has been increasing consistently since February 2021. The increase can be attributed to energy and food prices, which continue to be impacted by the war in Ukraine.
However, when stripping out energy and food prices, Core CPI was 5% on a year-over-year basis. This also accelerated from the previous month, making it the highest increase since the European Union was formed.
This will increase the pressure put on the European Central Bank to raise interest rates to combat inflation. However, raising rates too high would cause a ripple effect in global markets that would impact North American equities as well.
Stocks Fall as Bond Yields Rise
Last Updated 10:00AM EST
Stock indices are in the red 30 minutes into today’s trading session. As of 10:00 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.7%, 0.8%, and 1.2%, respectively.
The communications sector (XLC) is the laggard so far, as it is down 1.5%. Conversely, the energy sector (XLE) is the session’s leader with a gain of 0.9%.
WTI crude oil remains below $90 per barrel as investors weigh the impact of production cuts from oil-producing countries, along with a softening outlook that’s being caused by recession fears.
Meanwhile, bond yields are higher to start the day, as the U.S. 10-Year Treasury yield is now hovering around 4.05%. This represents an increase of more than three basis points from the previous close.
Similar movements can be seen with the Three-Month yield, which is now at 4.11%. As you can see, the spread between the 10-Year and Three-Month U.S. Treasury yields is negative, as it currently sits at -6 basis points. This negative spread has historically been a very accurate predictor of a recession, as it has always occurred, on average, 12 months before an official recession.
Futures Fall Ahead of Major Economic Data and Earnings
Stock futures dropped early on Monday morning as a power-packed week of earnings and economic updates begins.
Futures on the Dow Jones Industrial Average (DJIA) lost 0.43%, while those on the S&P 500 (SPX) lost 0.50%, as of 6.59 a.m. EST, Monday. Meanwhile, the Nasdaq 100 (NDX) futures retracted 0.66%.
Despite being slightly lower in the pre-market hours, the Dow is on track to end its best month since 1976, clocking in gains of nearly 14.4% for October.
On Friday, the Dow, the S&P 500, and the Nasdaq 100 ended 2.59%, 2.46%, and 3.17% higher, respectively, despite disappointments coming from a few big tech earnings last week.
As the earnings season continues this week, traders are eagerly awaiting the results from Uber (NASDAQ:UBER), Pfizer (NYSE:PFE), and Advanced Micro Devices (NASDAQ:AMD). Importantly, holding company Berkshire Hathaway (NYSE:BRK.A) is slated to report on later on Monday.
Key Economic Data Awaits This Week
On the economic data front, the highlight of the week is the two-day November FOMC meeting, which is scheduled to begin on Tuesday and last through Wednesday. Another 75 basis-point interest rate hike by the Federal Reserve will not come as a surprise, although the hope for a pivot is always there among investors.
All ears are expected to be on the tone of the speaker, Fed Chairman Jerome Powell, during the announcement. If the tone is as hawkish as it was during the Jackson Hole meeting, then the market is likely to find itself plummeting briefly. Investors are likely to look for any signs that the Fed will ease its stance in the near future.
Moreover, the labor department is slated to release October’s jobs report on Friday. The data will reflect the total number of jobs added as well as the unemployment rate for the month. Economists expect about 195000 jobs to have been added in October, a decline from the 263,000 reported in September. This may not look encouraging at first glance, but this may mean that the Fed’s monetary tightening is finally having the desired effect on the economy.
If a spike in unemployment is also reported along with lower job additions compared to September, investors may start looking forward to a softer policy path.
Big Tech to Face Supreme Court Ruling
Coming to the tech sector, the Supreme Court may be scrapping Section 230 on tech players, which protects internet companies from being sued for harmful content posted on their sites by third parties.
If the law is changed in a way that is unfavorable to tech companies, it could cause large swings in the market in the coming days, driven by volatility in tech stocks such as Google (NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META).
