U.S. Stocks Remain Lower In Run-Up To Key Fed Decision: Markets Wrap

(Bloomberg) -- Stocks came off session lows, but struggled to improve much further as data showing a solid US labor market bolstered speculation that Federal Reserve policy could remain aggressively tight even with the threat of a recession.

At a time when good news is considered bad news when it comes to policy conjectures, the S&P 500 erased an earlier advance as the figures highlighted an unexpected rebound in US job openings -- which may fuel wage gains and keep the pressure on the Fed. The report precedes Friday's payrolls report.

Big tech once again weighed on equities, with Apple Inc. down about 2% and Amazon.com Inc. on track for its lowest since 2020. Facebook parent Meta Platforms Inc. jumped. After notching its best month in 46 years, the Dow Jones Industrial Average traded near a resistance level that saw the index halt a few rally attempts in 2022. Two-year US yields -- which are more sensitive to imminent Fed moves -- climbed.

“Hopes for a Fed dovish pivot are misplaced if today's job openings are any guide,” said Ronald Temple, head of US equity at Lazard Asset Management. “Despite other signs of economic deceleration, the job openings data taken together with nonfarm payroll growth indicate the Fed is far from the point where it can declare victory over inflation and lift its foot off the economic brake.”

Also weighing on market sentiment was a separate report showing US manufacturing neared stagnation in October as orders contracted for the fourth time in five months, while an index of prices paid fell to a more than two-year low. The figures added to evidence of recession concerns as central banks step up the fight to get inflation under control.

To Matt Maley at Miller Tabak + Co., a lot of what will take place in markets over the next few weeks will hinge upon Powell's signals on Wednesday as well as the subsequent Fedspeak. Tom Porcelli at RBC Capital Markets says that if the Fed's boss really wants to transition to shallower hikes, he should maintain some element of hawkishness as there's a “decent risk of creating confusion.”

“As we have not yet reached the peak for Fed rate hikes, it's highly unlikely that we've already seen the bottom of this bear market, especially given the history of Fed rate hikes peaking before the market troughs,” noted Seema Shah, chief global strategist at Principal Asset Management. She anticipates the market floor for this cycle will most likely be reached in the first or second quarters of 2023.

For now, Shah sees both market and inflation volatility persisting alongside further Fed rate hikes in the last few months of 2002 and into early next year.

Lauren Goodwin at New York Life Investments says she believes the Fed may pause its rate hikes soon even amid strong inflation. Financial conditions have tightened substantially, and recession should be considered a base case, she added.

“Let me be clear -- a Fed pause is not the same as a pivot,” Goodwin added. “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.”

In corporate news, Uber Technologies Inc. posted revenue that beat expectations as gains in ridership assuaged investor concerns that rising inflation would damp consumer spending. Pfizer Inc. increased its forecast for adjusted earnings for the year as sales of its Covid-19 vaccine were stronger than expected. Eli Lilly & Co. cut its 2022 profit outlook due to the stronger US dollar and one-time charges.

Earlier in the day, speculation that China is preparing to gradually exit the stringent Covid Zero stance helped boost equities. A gauge of the nation's stocks listed in Hong Kong surged almost 7% intraday. Shares pared gains after Chinese Foreign Ministry spokesman Zhao Lijian said he's “not aware” of a committee on ending the policy.

Read: ‘It Is Unacceptable': Investors React to Toronto Exchange Outage

Key events this week:

• EIA crude oil inventory report, Wednesday
• Federal Reserve rate decision, Wednesday
• US MBA mortgage applications, ADP employment, Wednesday
• Bank of England rate decision, Thursday
• US factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
• ECB President Christine Lagarde speaks, Thursday
• US nonfarm payrolls, unemployment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.4% as of 2:34 p.m. New York time
• The Nasdaq 100 fell 0.9%
• The Dow Jones Industrial Average fell 0.3%
• The MSCI World index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $0.9884
• The British pound was little changed at $1.1478
• The Japanese yen rose 0.3% to 148.23 per dollar

Cryptocurrencies

• Bitcoin rose 0.1% to $20,429.65
• Ether rose 1% to $1,580.14

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.06%
• Germany's 10-year yield declined one basis point to 2.13%
• Britain's 10-year yield declined five basis points to 3.47%

Commodities

• West Texas Intermediate crude rose 2.1% to $88.38 a barrel
• Gold futures rose 0.7% to $1,652.10 an ounce

--With assistance from , , and .

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