All eyes will turn to the U.S. Federal Reserve as the central bank considers monetary policy.
Karen Bleier/AFP/Getty ImagesThe stock market was holding steady near record highs Tuesday, as investor attention turned squarely to the U.S. Federal Reserve’s Wednesday announcement.
In afternoon trading, the Dow Jones Industrial Average rose 150 points, or 0.4%, after the index rose 94 points Monday to close at 35,913. The S&P 500 was up 0.4%, and the Nasdaq Composite added 0.2%. All three indexes ended Monday at fresh record highs.
The latest meeting of the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary-policy body—gets under way Tuesday, and will wrap up Wednesday with a statement from Fed Chair Jerome Powell.
It’s largely expected that the central bank will announce that it will begin slowing, or tapering, its pandemic-era program of monthly asset purchases, which add liquidity to markets. The Fed has been buying $120 billion in bonds per month to keep their prices high and yields low. Now, markets expect the Fed to reduce those purchases by about $15 billion per month. A faster reduction could be bad for stocks.
“The Federal Reserve’s tapering could begin by year-end and we’ll likely hear more commentary during Wednesday’s meeting, but we don’t expect any tapering actions to disrupt the stock market’s rally,” wrote Greg Marcus, managing director at UBS Private Wealth Management. “The Federal Reserve has been signaling its tapering plans for some time.”
Importantly, markets will also be listening for cues as to when the central bank might begin hiking short-term interest rates. Recently, economic growth has slowed, while inflation has taken off. If that continues and the Fed has to lift rates sooner rather than later, stocks could sell off.
“Will the central bank alter its widely telegraphed policy that it intends to keep the overnight rate unchanged until mid-2023 or will it change its outlook to more closely align itself with the markets?” wrote Kent Engelke, chief economic strategist at Capitol Securities Management. The markets, in this case, are nervous that the Fed will lift short-term rates sooner rather than later, with the 2-year Treasury yield up to 0.47% from 0.21% in late September before the Fed made an announcement.
The Royal Bank of Australia started off the week’s central bank decisions, announcing Tuesday that it would tighten monetary policy and abandon its goal of keeping the yield on three-year bonds to 0.1%. There will also be an announcement Wednesday from the Bank of England.
The stock market looks like it’s waiting for the Fed. The Invesco S&P 500 Equal Weight Exchange-Traded Fund (RSP), which weights each stock in the index equally and therefore shows the movement of the average stock, was gaining just 0.2%. There was minimal economic data out Tuesday and earnings season is winding down, with only 49 companies—or 5% of of the S&P 500’s market capitalization—reporting on the day, according to Credit Suisse.
“Markets are waiting for the Fed now that we’re through the big earnings season,” said Matt Orton, chief market strategist at Carillon Tower Advisers.
Elsewhere, the Organization of the Petroleum Exporting Countries and its affiliates—a group that includes Saudi Arabia and Russia—meets against the backdrop of a surge in energy prices. Futures for the U.S. crude benchmark, West Texas Intermediate, were trading around $83.60 a barrel on Tuesday, near yearly highs.
But other commodity prices fell, with Chinese iron ore futures plunging amid slowing steel output in China. Futures for iron ore to be delivered in China for November fell more than 6% Tuesday—down almost 20% in the last five days alone—as contracts for December delivery slipped 5.7%. Steel output fell 2% in the final third of October to the lowest levels since March 2020, according to data from Chinese market intelligence group Mysteel.
Overseas, Tokyo’s Nikkei 225 slipped back 0.4%, paring gains after a Monday rally cheering weekend election results. In London, the FTSE 100 was 0.2% lower, weighed down by declines in the energy and mining sector, which are heavily-weighted in the U.K.’s leading stock index.
Here are 5 stocks on the move Tuesday:
Arista Networks (ticker: ANET) stock rose 21% after the company reported a profit of $2.96 a share, beating estimates of $2.73 a share, on sales of $749 million, above expectations for $738 million.
Under Armour (UAA) stock gained 16% after the company reported a profit of 31 cents a share, beating estimates of 15 cents a share, on sales of $1.55 billion, above expectations of $1.48 billion.
DuPont de Nemours (DD) stock gained 8% after the company said it has agreed to buy Rogers Corp. (ROG) for $5.2 billion. The company also announced it will divest a portion of its materials business.
Tesla (TSLA) shares fell 3.3% after the company said it hasn’t yet signed a deal to supply 100,000 electric vehicles to Hertz.
Exxon Mobil (XOM) stock dropped 1.1% after getting downgraded to Sell from Hold at Truist.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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November 03, 2021 at 01:05AM
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Stock Market Today: Dow Holds Near Record High as Fed Decision Looms - Barron's
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