Today's Fed rate decision is widely expected to be a pause for the second straight meeting. Questions center around the tone of Fed Chairman Jerome Powell's press conference as the market tries to determine if the Fed might be done raising rates. Friday's jobs report also looms.
Thin, choppy trading possible ahead of Fed’s 2 p.m. ET rate decision, with a pause widely expected
Most of today’s key data to post after the open, including job openings and ISM Manufacturing
Dollar, crude oil, Treasury yields all edge higher ahead of open, bringing early pressure
(Wednesday market open) November dawns after major indexes finished October with consecutive gains for the first time in two weeks. Stocks lost ground in premarket trading Wednesday, however, as investors awaited results from today’s Federal Reserve meeting that’s widely expected to bring a second straight rate pause.
This week hasn’t featured many positive catalysts other than the 10-year Treasury note yield’s failure to hold onto 5%. The upward move in stocks, with all 11 S&P sectors rising Monday and Tuesday, could reflect technical buying after the S&P 500® Index and Nasdaq 100 (NDX) both hit correction territory, down 10% from 52-week highs. Other recent weeks saw early strength that didn’t last. The question is if the market can break that pattern.
Data today might provide insight into an economy that consistently appeared to exceed expectations through summer and fall, but which many analysts expect to slow toward the end of 2023. Job openings and Institute for Supply Management (ISM) Manufacturing reports are on deck.
At 2 p.m. ET, the Federal Open Market Committee (FOMC) is scheduled to share its latest decision on interest rates. The market builds in nearly 100% chance of a second consecutive pause, but it could be a hawkish one. Many Fed policymakers say more increases are possible if data continue to look hot, and today’s post-meeting press conference from Fed Chairman Jerome Powell could give investors fresh perspective. Friday’s October Nonfarm Payrolls report might also influence Fed thinking.
With trading typically thin ahead of a rate decision, any big surprises in this morning’s data could potentially cause larger-than-normal swings. Things could also get choppy during Powell’s 2:30 p.m. ET press conference, as they often have in the recent past.
“There tends to be an over-reaction on Fed days,” says Kevin Gordon, senior investment strategist at Schwab.
Though crude oil remains elevated in part due to Middle East tensions, U.S. daily production recently hit a new record high of 13.2 million barrels, the Energy Information Administration (EIA) said.
ADP Jobs data showed 113,000 positions created in October, a bit above the 100,000 that analysts had expected according to Briefing.com. September’s figure stayed unchanged at 89,000. As a reminder, recent ADP jobs data haven’t aligned closely with the government’s official Nonfarm Payrolls numbers due out on Friday.
In yield-related news, The Treasury Department announced it’s offering $112 billion in Treasury securities on November 15, a bit lower than analysts had expected and perhaps a sign that the government is concerned about the recent surge in yields, Bloomberg reported. This announcement comes every quarter but attracted more attention recently because of 16-year highs in Treasury yields that continue to weigh on Wall Street.
Shares of chipmaker Advanced Micro Devices (AMD), up more than 50% for the year but down more than 20% since June, reversed course in premarket trading and began posting gains after an initial loss. The company beat analysts’ revenue and earnings per share estimates, and investors appeared to like guidance for strong artificial intelligence (AI) chip demand in 2024. This is an area where AMD competes with Nvidia (NVDA), often seen as the market leader.
Apple ahead: Earnings loom tomorrow afternoon for Apple (AAPL) with initial iPhone 15 sales and the company’s China business likely in focus. Apple’s revenue has been down year-over-year for the past three quarters, and analysts expect quarterly revenue to fall again—6% on average from a year ago.
ISM Manufacturing, due out this morning, has wallowed in contractionary mode below 50% for 11 straight months. Consensus for October is 49.0%, according to Briefing.com, unchanged from September. China’s October manufacturing softness, announced earlier this week, might squelch hopes of improvement in the U.S.
The September Job Openings and Labor Turnover Survey (JOLTS) also is due out shortly after the opening bell. Analysts expect a drop to 9.23 million in September, according to Trading Economics. August’s tally topped expectations at 9.61 million, the highest since April, but some analysts suggested August’s data might have been artificially high due to seasonal factors such as teachers going back to work. Also, the response rate was on the low side.
The bigger jobs report this week is on Friday morning. Analysts now expect October jobs growth of 180,000, according to Trading Economics, down from 336,000 in September. Analysts have been consistently too low in their job growth estimates, but the government has also followed many recent reports by lowering those estimates as time went by. Unemployment is seen unchanged at 3.8%.
The Treasury Department’s announcement today on its could rattle stocks as investors get a sense of sizes and maturities of auctions ahead. Weak demand for Treasuries at some recent auctions pushed yields up as supplies built and buyers demanded higher payments for tying up their money.
Early today, futures trading pegged chances at 97.2% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate at the current 5.25% to 5.50% target range following this week’s meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC’s December 12 meeting are 27%.
Ideas to mull as you trade or invest
didn’t take investing genius to grow your investments back in 2021–U.S.
diversified stock funds posted average 21% gains that year, according to Investor’s Business Daily. How things
have changed. With only 25% of S&P 500 stocks recently trading above
their respective 200-day moving averages, it takes a lot more work now to zero
in on potential positive returns. “It’s more of a stock picker’s
market,” says Joe Mazzola, director of trader education at Schwab.
“We’re not getting a big base of outperformance—it continues to be very
concentrated.” This means investors may need to spend more time digging
into company results and guidance to better understand potential impacts from
geopolitical risk, high interest rates, energy costs, valuations, and the
overall business environment. While the SPX
now trades with a relatively low forward price-to-earnings ratio of 17 and
all 11 sectors were recently down from a month ago, there still arguably aren’t
many parts of the market that can be called cheap considering the current
interest-rate backdrop. “The market continues to look defensive, and you
need to be selective,” Mazzola adds.
Pay up: August’s swollen job openings suggested companies still must
compete for workers, perhaps pushing wages higher and stirring inflation
concerns. That’s one reason the Fed will be closely watching today’s JOLTS report, which measures employer demand for
workers closely. Even if job openings fall to 9.2 million, in line with
consensus, they’ll remain about 50% above average pre-pandemic levels. The
recent settlements between automobile companies and striking workers that led
to large pay increases might have the Fed and some investors concerned about
inflationary impact. Keep an eye on which sectors in the JOLTS report drive the
gains. If it’s higher-paying ones like business and professional services, as in
August, that would possibly raise an inflation flag.
Dollar vs. yen: The Bank of Japan’s
(BoJ) meeting this week took it one baby step closer toward toning down the
loose policy that was one factor sending the yen to 33-year lows versus the
dollar recently. However, the policy announcement was more
muted than expected and failed initially to stop the yen from weakening further.
”“Further normalization of BoJ policy could
still occur in coming months,” says Michelle Gibley, director of
international research at Schwab. “It is possible that if the BoJ ends
bond purchases and starts hiking rates, and the Fed and other central banks
start cutting rates, the yield differential could narrow and attract Japanese
investors back home over time, and the yen could strengthen.” Thus far, the
BoJ’s changing policy simply hasn’t been enough to overcome U.S. Treasury yields
rising faster, which have been bullish for the greenback. A
strengthening yen could help U.S. multinational firms that often see their overseas
sales dinged by a strong dollar.
Nov. 2: September Factory Orders and expected
earnings from ConocoPhillips (COP), and Apple (AAPL).
Nov. 3: October Nonfarm Payrolls, October ISM
Non-Manufacturing Index, and expected earnings from Cardinal Health (CAH).
Nov. 6: No major earnings or data expected.
Nov. 7: September Consumer Credit and
September Trade Balance, and expected earnings from D.R. Horton (DHI), Uber
(UBER), Zimmer Biomet (ZBH), eBay (EBAY), and Rivian (RIVN).
Nov. 8: September Wholesale Inventories and
expected earnings from Biogen (BIIB) and Walt Disney (DIS).
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.
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